Saturday, May 27, 2023

US inflation rose 7.9% over the past year, a new 40-year high

The increase reported by the Labor Department on Thursday reflects the 12 months ending in February and does not include the rise in oil and gas prices that followed Russia’s invasion of Ukraine on February 24. Since then, average gas prices have jumped about 62 cents nationally. $4.32 off the gallon according to AAA.

Further spurts in prices, consumer spending, solid wage growth and a lack of consistent supply before the war drove US inflation to its highest level in four decades. Furthermore, the cost of housing, which accounts for about a third of the government’s consumer price index, has risen sharply, a trend that is unlikely to reverse anytime soon.

“The figures are eye-watering, and there is more to come,” said Eric Vinograd, senior economist at asset management firm AllianceBernstein. “The peak in inflation will be much higher than before and will come later than before.”

Trying to stem the rise of inflation, the Federal Reserve is set to raise interest rates several times this year, beginning with a quarter-point hike next week. The Fed faces a delicate challenge, however: If it tightens credit too aggressively this year, it risks shrinking the economy and possibly triggering a recession.

From January to February, prices of almost every category of goods and services rose. In addition to the pandemic-induced price hike two years ago, grocery costs rose 1.4%, the sharpest one-month increase since 1990. The collective price of fruits and vegetables rose 2.3%, the biggest monthly increase since 2010. Gas prices rose 6.6%, clothing up 0.7%.

For the 12 months ending February, grocery prices rose 8.6%, the biggest year-on-year increase since 1981, the government said. Gas prices have increased by 38 percent. And housing costs have increased by 4.7%, the biggest annual jump since 1991.

Lydia Bussour, an economist at Oxford Economics, estimates that if oil remains at $120 a barrel for the rest of this year – which topped Tuesday before slipping – it will cost US households an average of $1,500. He said that this will weaken the economic growth rate by about 0.8 percent this year. Many economists have cut their growth projections for 2022 by almost half a point to about 2.5%.

Across the country, individual Americans as well as companies are grappling with the rise of inflation and trying to cushion its impact.

“Gas prices are above the ceiling, especially with the spring break for kids,” Vikas Grover said Monday while filling up his car in Herndon, Virginia. “It definitely takes up a lot of our overall budget.”

In San Jose, Calif., Maurice Brewster, founder of Mosaic Global Transportation, a limousine and transportation company with nearly 100 vehicles, has been hit by gas prices. A few months ago, Brewster was paying $4 a gallon. The price on Monday was $6.39.

“Inflation has been a killer,” he said. “I feel it every day.”

A large part of Brewster’s business is laying off San Francisco employees at Silicon Valley companies such as Google, Meta (formerly known as Facebook) and Merck. The cost of gas is built into those contracts, and Brewster is now passing on the higher prices.

Brewster also rents limos to consumers for weddings, wine tours and other functions, and that business is booming as pandemic restrictions are eased. He plans to add a 10% fuel surcharge to the consumer fare and is praying that his customers will pay it.

“I’m guessing it still won’t stop them from getting out and having a good time,” he said. “I hope I’m not wrong.”

Energy prices, which rose after Russia’s invasion of Ukraine, jumped again this week after Biden said the United States would freeze oil imports from Russia. Oil prices backtracked on Wednesday over reports that the United Arab Emirates would urge fellow OPEC members to boost production. But they rose again on Thursday.

The Biden White House has attributed the rise in inflation to the ability of some corporate giants to dominate industries and squeeze out competition that would otherwise drive prices down. The administration argues that meat prices, for example, are higher because four meat-packing firms control the industry.

In his State of the Union address last week, Biden insisted that the US should be manufacturing more goods at home rather than abroad to avoid the supply chain backup that many companies are defrauding. Yet more competition or producing more domestic products will take time and inflation will not subside anytime soon.

Republicans in Congress and many economists say the Biden administration’s $1.9 trillion financial rescue package, which distributed stimulus checks to millions of homes after the pandemic and increased unemployment benefits, contributed to high inflation by accelerating consumer spending.

The economic consequences of Russia’s war have fueled a broader belief among many economists and the Fed: Inflation will begin to ease this spring as prices soared in March and April of 2021 to see a decline compared to a year earlier. . This is not likely to happen. Should gas prices stay near their current levels, Vinograd estimates inflation could reach 9% in March or April.

Laura Rosner-Warburton, senior economist at Macropolicy Perspectives, suggested that a key question in the coming months will be whether rising gas costs from rising costs of items such as shipping and airline tickets spread higher gas costs to the broader economy. Such basic price increases usually take longer to fade than volatile energy costs.

Slow growth presents a particularly difficult challenge for the Fed, as it comes at a time when high gas prices are also picking up on inflation. This pattern is similar to the “inflation” dynamic that made the economy of the 1970s miserable for many Americans.

However, most economists say they think the US economy is growing so strongly that another recession is unlikely.

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APTN photojournalist Dan Huff contributed to this report.

World Nation News Desk
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