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A key inflation gauge sets 40-year high as gas and food soar – Press Telegram

An inflation indicator that is closely monitored by the Federal Reserve jumped 6.4% in February compared to a year ago, with markedly higher prices for food, gasoline and other commodities that put pressure on American finances.

The figure reported on Thursday by the Commerce Department was the largest year-on-year rise since January 1982. Excluding volatile food and energy prices, so-called core inflation rose 5.4% in February compared to 12 months earlier.

Strong consumer demand has been combined with the scarcity of many goods to fuel the sharpest price jumps in four decades. Inflation measures are likely to worsen in the coming months because Thursday’s report does not reflect the aftermath of the Russian invasion of Ukraine, which took place on February 24th. The war disrupted world oil markets and accelerated the prices of wheat, nickel and other key raw materials.

Trapped by inflation, consumers increased their spending by just 0.2% in February, below a much higher gain of 2.7% in January. Adjusted for inflation, spending actually fell 0.4% last month. The decline partly reflected a shift in spending on goods to focus on services such as health, travel and entertainment, which consumers would have avoided during the worst of the pandemic.

Spending on this type of service grew by 0.6%, the highest since July, while purchases of cars, furniture, clothing and other goods fell by 2.1%. Many economists had previously suggested that a move away from buying goods could loosen supply chain cranes and curb inflation. But prices continue to rise rapidly for goods, including a 1.1% rise in February.

Overall income for Americans rose 0.5% in February, the highest increase since November and an increase from just 0.1% in January. Wages rose 0.8%, the highest in four months.

Companies have been raising wages to attract and retain employees, a trend that is benefiting workers but is also giving employers reasons to raise prices to offset their higher labor costs. That cycle is helping fuel inflation.

Last month, food costs rose 1.4%, the highest in nearly two years. Energy costs rose 3.7%, the largest increase since October.

The Federal Reserve responded to rising inflation this month by raising its benchmark short-term interest rate by a quarter of a point from near zero, and is likely to continue to rise until next year. Because its rate affects many consumer and business loans, Fed hikes will make loans more expensive and could weaken the economy over time.

JPMorgan’s Michael Feroli is among economists who now think the Fed will raise its key rate by an aggressive midpoint in both May and June. The central bank has not raised its benchmark rate by half a point in two decades, a sign of how concerned it is about the persistent rise in inflation.

Monthly prices rose 0.6% from January to February, a slight increase from the 0.5% increase of the previous month and equaling the highest monthly figure since 2008. Basic prices rose 0.4%, below 0.5% in January.

Gasoline prices have skyrocketed in the last month following the Russian invasion, which led the UK and the Biden administration to ban Russian oil exports. The cost of a gallon of gasoline rose to a national average of $ 4.24 per gallon on Wednesday, according to AAA. That’s 63 cents more than a month ago, when it was $ 3.61.

Michael Pearce, an economist at Capital Economics, estimated that the rise in gas prices will cost Americans $ 100 billion annually in March.

A key inflation gauge sets 40-year high as gas and food soar – Press Telegram Source link A key inflation gauge sets 40-year high as gas and food soar – Press Telegram

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