Inflation report 2022: Consumer price index soars 7.9% over past 12 months, biggest spike since 1982

WASHINGTON – Driven by rising costs for gas, food and housing, consumer inflation jumped 7.9% last year, the biggest sharp rise since 1982 and probably just a harbinger of even higher prices in the future.

The increase reported by the Ministry of Labor on Thursday reflects the 12 months ended in February and did not include most of the oil and gas price hikes that followed Russia’s invasion of Ukraine on February 24. cents a gallon to $ 4.32, according to the AAA.

Even before the war further accelerated price increases, strong consumer spending, steady increases in wages, and persistent supply shortages had pushed U.S. consumer inflation to its highest level in four decades. In addition, housing costs, which make up about a third of the government’s consumer price index, have risen sharply, a trend that is unlikely to be reversed any time soon.

The government report on Thursday also showed that inflation rose 0.8% from January to February, up from 0.6% from December to January.

For most Americans, inflation is far ahead of the wage increases many received last year, making it harder for them to afford necessities such as food, gas and rent. As a result, inflation has become the top political threat to President Joe Biden and congressional Democrats as the midterm elections approach. Small businesses say in surveys that it is their main financial concern.

Seeking to stem the burst of inflation, the Federal Reserve is set to raise interest rates several times this year, starting with a modest increase next week. However, the Fed faces a subtle challenge: If it tightens credit too aggressively this year, it risks undermining the economy and possibly causing a recession.

Energy prices, which soared after the Russian invasion of Ukraine, soared again this week after Biden said the United States would ban oil imports from Russia. Oil prices fell on Wednesday after reports that the United Arab Emirates would urge other OPEC members to boost production. US crude fell 12 percent to $ 108.70 a barrel, although it continued to rise sharply from about $ 90 a barrel before the Russian invasion.

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However, energy markets have been so volatile that it is impossible to know if the downturn will continue. If Europe joined the United States and the United Kingdom and banned Russian oil imports, analysts estimate that prices could skyrocket to $ 160 a barrel.

The economic consequences of Russia’s war on Ukraine have overturned a wide-ranging argument between many economists and the Fed: that inflation will begin to fall this spring because prices rose so much in March and April 2021 that comparisons with a year before they would show reductions.

If gas prices stay close to current levels, Eric Winograd, a senior economist at AllianceBernstein asset management, estimates that inflation could reach as high as 9% in March or April.

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The costs of wheat, corn, cooking oils and such metals as aluminum and nickel have also increased since the invasion. Ukraine and Russia are the leading exporters of these goods.

Even before the Russian invasion, inflation was not only rising sharply but also expanding into additional sectors of the economy. Many prices have skyrocketed in the past year because high demand has led to small supplies of items such as cars, building materials and household items.

But even for some services that are not affected by the pandemic, such as rent, costs are also rising at the fastest pace in decades. The steady increase in jobs and high housing prices are encouraging more people to move into apartments, increasing rental costs by a maximum of the last two decades. Vacancy rates have reached their lowest level since 1984.

In the last three months of last year, wages and salaries have jumped by 4.5%, the largest such increase in at least 20 years. These wage increases, in turn, have led many companies to raise prices to offset their higher labor costs.

Rising energy costs are a particularly difficult challenge for the Fed. Higher gas prices tend to accelerate inflation and weaken economic growth. This is because as their wages are eroded by the petrol pump, consumers usually spend less in other ways.

This pattern resembles the dynamics of “stagnant inflation” that made the 1970s economy miserable for many Americans. Most economists, however, say they believe the US economy is growing fast enough for a new recession to be unlikely, even with higher inflation.

Copyright © 2022 by the Associated Press. All rights reserved.

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