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US inflation rate hits fresh 40-year high 

posted onApril 13, 2022
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The annual inflation rate in the US rose by 8.5% in March — the highest level since 1981,  the labor department announced on Tuesday, further fueling concerns of tighter monetary policy from the Federal Reserve.

The US central bank raised interest rates in mid-March by 25 basis points, but all indications are that a larger, 50-basis-point, hike is on the table for its meeting in May to try to slow borrowing and spending and tame inflation.

Energy prices increased 32%, namely gasoline (48%) and fuel oil (70.1%), food prices jumped 8.8%, the most since May 1981. Also, inflation accelerated for shelter and new vehicles but eased for used cars and trucks (35.3% vs 41.2%)

The average price of a gallon of gasoline — $4.10 — is up 43% from a year ago, according to the American Automobile Association.

Core CPI – which excludes food and energy prices, which tend to be more volatile-rose 6.5%, the most in 40 years but slightly below forecasts of 6.6%.

Many analysts expect that March will mark the peak in inflation although the war in Ukraine is far from over, disruptions to global food and energy markets persist, and consumer demand remains robust, which is likely to weigh on the CPI for longer.

"The surge in energy prices helped drive headline CPI inflation up to a new 40-year high of 8.5% in March but, with base effects set to become much more favorable and signs that monthly gains in core prices are moderating, we expect that to mark the peak," said Andrew Hunter, Senior US Economist At Capital Economics.

The March inflation numbers were the first to capture the full surge in gasoline prices that followed Russia's military intervention in Ukraine on Feb. 24. 

But inflation rates were already rising before as many world economies reopened following the lifting of Covid restrictions. However, prices appear to be accelerating at a time when wage growth is struggling to keep up.

Many economists say they worry that the Fed has waited too long to begin raising rates and might end up acting so aggressively as to cause an economic downturn.

The eye-popping CPI figure with its impact on Americans’ daily lives, is posing a political threat to President Joe Biden and his Democratic allies as they seek to keep control of Congress in November’s midterm elections.

 

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