The annual inflation rate in the US accelerated to 8.5% in March of 2022, a level not seen since December of 1981 from 7.9% in February and in line with analysts’ estimates. Major contributors were the energy prices which jumped 32% (gasoline 48% and fuel oil 70.1%) partially due to Russia’s aggression in Ukraine. Also, food prices surged 8.8%, the most since May 1981, which is especially painful for citizens with low incomes. Also, inflation accelerated for shelter (5% vs 4.7% in previous month) and new vehicles (12.5% vs 12.4%) but eased for used cars and trucks (35.3% vs 41.2%). Core reading showed that inflation increased to 6.5%, the most in 40 years but slightly below market expectations of 6.6%.
The CPI rose to 8.5% YoY, the biggest annual gain since December 1981, the Labor Department said. The core CPI, which strips out volatile food and energy categories, increased to 6.5% YoY, highest since August 1982. Source: Macrobond, XTB Research
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Gasoline costs drove half of the monthly increase, while food was also a sizable contributor. Source: Macrobond, XTB Research
Many economists expect that March will mark the peak in inflation, however the war in Ukraine is far from over, while the worsening pandemic situation in China may cause additional supply chain problems. If we couple this with the rising consumer demand then elevated inflation may stay with us for a longer period of time. Meanwhile the labour market has been showing signs of being extremely tight. Strong jobs market and runaway inflation put additional pressure on the Fed to raise interest rates even more aggressively in order to cool down the economy.
