US consumer price growth surpassed 8 per cent in March, rising at its fastest pace since 1981 following a surge in energy and food prices exacerbated by Russia’s war on Ukraine.
Consumer prices rose 8.5 per cent last month compared with a year ago, marginally above Wall Street’s expectations, the Bureau of Labor Statistics said on Tuesday.
The monthly rise registered at 1.2 per cent, the fastest jump since September 2005 and a sharp acceleration from the 0.8 per cent increase recorded in February.
However, once volatile items such as food and energy are stripped out, “core” CPI advanced only 0.3 per cent in March. That was the slowest rise since September, prompting a rally in Treasuries and overnight funding markets as traders bet that the Federal Reserve would not have to tighten policy to stamp out inflation as aggressively as markets had been anticipating.
The data for the first time included the economic impact of Russia’s invasion of Ukraine, which has clouded the global outlook and sparked concerns about slowing growth coupled with even more elevated price pressures. Russia is one of the world’s largest energy exporters, and both Russia and Ukraine are major suppliers of wheat and other grains.
The Biden administration on Monday blamed the surge in prices on the war, with White House press secretary Jen Psaki saying the CPI reading would be “extraordinarily elevated due to Putin’s price hike”.
The figures underscored the impact of volatile commodity prices, with a jump in petrol accounting for more than half of the overall increase in March’s CPI. Over the past year, prices at the pump have climbed 48 per cent, including an 18.3 per cent rise between March and February.
But there were signs that prices were slowing elsewhere. Used car prices, which have been skyrocketing since the pandemic pushed many Americans away from mass transit, fell 3.8 per cent in March. The cost to buy a new vehicle increased 0.2 per cent from a month prior, a lower increase than the gain registered in February.
The slower rise in prices outside energy and food comes even as inflation expectations have risen. A new monthly survey released by the Fed’s New York branch on Monday showed that US households are bracing for costs to continue rising.
Over the next year, consumers anticipate inflation hitting 6.6. per cent, a 0.6 percentage point rise from the previous period. Expectations for the three-year outlook declined marginally but still remain elevated at 3.7 per cent.
Concerns that inflation will become even more deeply entrenched in the world’s largest economy have prompted the US central bank in recent weeks to assume a more aggressive approach to tightening monetary policy.
The Fed is now poised to raise interest rates by half a percentage point at its next policy meeting in May, double the pace of its March rate rise, as it seeks to lift its benchmark policy rate to a more “neutral” level that neither aids nor constrains growth by the end of the year.
Officials forecast that rate to be roughly 2.4 per cent, implying at least one more half-point adjustment in addition to four more quarter-point rate rises in 2022.
The central bank is also set to begin shrinking its $9tn balance sheet next month, building up to as much as $95bn a month over roughly three months beginning in May.
Traders on Tuesday lowered their own expectations for how high the Fed would raise interest rates this year to 2.43 per cent, down from 2.59 per cent earlier in the day.
US financial markets rallied after the data, with futures pointing to a 1.2 per cent advance in the benchmark S&P 500 stock index at the open. US Treasuries also gained, with the yield on the 10-year note declining 0.06 percentage points to 2.72 per cent. Yields decline when a bond’s price rises.
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2022-04-12 13:22:52Z
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