Inflation in the United States reaches 8.5% after soaring energy and food prices

US consumer price growth exceeded 8% in March, the fastest pace since 1981 following the soaring cost of energy and food, keeping pressure on the Federal Reserve to take aggressive action to combat inflation.

The consumer price index rose 8.5% last month from a year ago, slightly above Wall Street expectations, the Bureau of Labor Statistics said Tuesday. The monthly increase was 1.2%, the fastest jump since September 2005 and a sharp acceleration from the 0.8% increase. recorded in February.

Once volatile elements such as food and energy were eliminated, the “core” CPI rose 0.3% in March. This was the slowest increase since September, but it still resulted in an annual increase of 6.5%.

Lael Brainarda Fed governor awaiting Senate confirmation as next vice president, warned of “upside” risks to inflation, citing the invasion of Ukraine – which is fueling energy and food costs – and the new Covid-19 blocks in China that could worsen supply chain constraints.

“The economy has suffered a number of inflationary shocks of this type due to external events,” he said in a Wall Street Journal event. “We’ve seen a lot of resilience, but we’ve also seen very high inflation.”

Annual percentage change in CPI

It was the first reading of inflation which included a full month of the impact of the war in Ukraine, which greatly clouded the global outlook. Russia is one of the largest energy exporters in the world, as are Russia and Ukraine major suppliers of wheat and other cereals.

The moderation of the core CPI resulted in a rally in Treasuries and overnight finance markets as traders trimmed their bets due to the pace and size of the market. interest rate increases this year.

However, markets are still pricing in a hike in the Fed’s key rate to 2.42% by the end of 2022, down from 2.59% previously but well above the current 0.25% range to 0. 50%.

The Biden administration on Monday blamed the price hike of the war, with White House Press Secretary Jen Psaki saying the CPI reading would be “extraordinarily high due to Putin’s price hike.”

But Joe Manchin, the moderate Democratic senator from West Virginia, said Tuesday, “The Federal Reserve and the administration failed to act fast enough and today’s data is a snapshot of the consequences being felt across the country.” .

He added that it was “a disservice to the American people to act as if inflation were a new phenomenon.”

Manchin, who blocked Biden’s broad social spending plans on the grounds that they were inflationary, said keeping prices “under control will require more aggressive action” by the Fed, as well as a change in energy policy to Capitol Hill.

“Everyone is worried about inflation,” said Vincent Reinhart, a former senior Fed staff member who is now chief economist at Mellon. “He is number one in the polls. Right now it’s consuming the Fed’s bandwidth. “

The figures underscored the effect of commodity price volatility, with a rise in gasoline accounting for more than half of the overall March CPI rise. Over the past year, pump prices have increased by 48%, including an 18.3% increase between March and February.

In addition to energy prices, the prices of main services in March increased by 0.6% compared to the previous month, or by 4.7% annually. This is the biggest monthly jump since August 1992.

But there were signs of a slowdown in prices elsewhere. Used car prices, which have skyrocketed since the coronavirus pandemic turned many Americans away from mass transit, dropped 3.8% in March. The cost of purchasing a new vehicle increased 0.2 percent from the previous month, a smaller increase than in February.

Fears that inflation may take root more deeply in the world’s largest economy have prompted the US central bank in recent weeks to take a more aggressive approach to tightening monetary policy.

The Fed is now ready to raise interest rates by half a percentage point at the next policy meeting in May, double the pace of the March rate hike, as it seeks to raise the benchmark rate to a more “neutral” level that neither helps nor limits growth by the end of the year .

Officials expect the rate to be around 2.4%, which implies at least one further half-point adjustment in addition to four more quarter-point rate hikes in 2022.

The central bank will also start soon reducing its balance sheet by $ 9 trillionaccumulating up to $ 95 billion a month in about three months.

Brainard said the process will begin as early as June and, combined with rate hikes, should bring the Fed’s policy to a more neutral “over time” stance.

US Treasury prices rose on Tuesday, pushing the benchmark 10-year note yield down 0.07 percentage points to 2.71%. Shares, which had initially risen after the data was released, slid 0.6% in a volatile session.

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