Inflation worsened in February amid a deepening crisis in Ukraine and price pressures that took root.
The consumer price index, which measures a broad basket of goods and services, rose 7.9% in the past 12 months, a new 40-year high for the closely watched indicator, according to the Department of Labor’s Bureau of Labor Statistics.
February’s acceleration was the fastest since January 1982, when the US economy faced the twin threats of higher inflation and reduced economic growth.
Month over month, the CPI gained 0.8%. Economists polled by Dow Jones expected headline inflation to rise 7.8% for the year and 0.7% for the month.
Food prices rose 1% and food from home jumped 1.4%, the two fastest monthly gains since April 2020, when the Covid-19 pandemic began.
Energy was also at the forefront of the price surge, rising 3.5% in February and accounting for about a third of the overall gain. Shelter costs, which account for about a third of the CPI’s weighting, rose another 0.5%, up 4.7% year-on-year, the fastest annual rise since May 1991.
A customer fills up at a Chevron gas station with prices above $4 a gallon in Seattle, Washington, U.S., Monday, March 7, 2022.
david ryder | Bloomberg | Getty Images
Excluding volatile food and energy prices, so-called core inflation rose by 6.4%, in line with estimates and the highest since August 1982. On a monthly basis, core CPI rose rose 0.5, also in line with Wall Street expectations.
Rising inflation has caused workers’ paychecks to drop further despite what would otherwise be considered steep increases.
Real average inflation-adjusted hourly earnings for the month fell 0.8% in February, contributing to a 2.6% decline over the past year, according to the BLS. This happened even though overall profits were up 5.1% from a year ago, but were offset by soaring prices.
Markets pointed to a negative opening on Wall Street as stocks came under pressure from the collapse of ceasefire talks between Russia and Ukraine. Government bond yields rose after the CPI report.
“Inflation is at an all-time high, but the reality is that there are no real surprises in this report,” said Mike Loewengart, managing director of investment strategy for E-Trade. “The market has probably already priced the rise in inflation accordingly and is instead focusing on Ukraine and the downstream impact of commodities, which are already sending shockwaves through the market.”
The surge in inflation is in line with the rise in prices over the past year. Inflation has soared amid unprecedented government spending coupled with ongoing supply chain disruptions that have been unable to meet stimulus-fueled demand, particularly for goods in relation to services.
Policymakers expect inflation to ease as supply chain issues ease. The New York Fed supply chain index shows that the pressure has eased in 2022, although it is still close to historically high levels.
Vehicle costs have been a powerful inflationary force, but showed signs of slowing in February. Used car and truck prices actually fell 0.2%, their first negative showing since September 2021, but are still up 41.2% over the past year. New car prices rose 0.3% for the month and 12.4% over the 12-month period.
A raging crisis in Europe has only fueled price pressures as sanctions against Russia have coincided with soaring gasoline prices. Prices at the pump are up about 24% over the past month and 53% over the past year, according to AAA.
Additionally, companies are raising costs to keep up with commodity prices and increasing wages in a historically tight labor market where there are about 4.8 million more job openings than there are. of available workers.
Recent surveys, including one this week from the National Federation of Independent Businesses, show that a record number of small businesses are raising prices to cope with soaring costs.
In an attempt to stem the trend, the Federal Reserve is expected to announce next week the first of a series of interest rate hikes aimed at curbing inflation. It will be the first time the central bank has hiked rates in more than three years and marks a reversal from a zero interest rate policy and unprecedented levels of liquidity injections for an economy which, in 2021, has progressed at its fastest pace in 37 years.
However, inflation is not a US-centric story.
World prices are subject to many of the same factors that hit the domestic economy, and central banks are responding accordingly. On Thursday, the European Central Bank said it would not change its benchmark interest rate but would end its own asset purchase program earlier than expected.
In other economic news, jobless claims for the week ended March 5 totaled 227,000, above the estimate of 216,000 and up 11,000 from the previous week, the Department of Labor said. Continuing claims rose slightly to just under 1.5 million, although the four-week rolling average remained at its lowest level since 1970.