Inflation rises to 7.9% in February 2022
Prices rose 7.9% in the year to February, the fastest pace of inflation in 40 years, as gasoline prices rose and a wide range of goods and services has become more expensive.
The rising cost of gasoline, food and rent contributed to the increase, the Bureau of Labor Statistics said.
Rapidly rising prices have hit consumers in the wallet, causing confidence to plummet and stretching household budgets. Rising wages and accumulated savings during the pandemic have helped families continue to spend despite rising prices so far, but the burden falls intensely on low-income households, who spend a large part of their budget daily necessities which are now rapidly becoming more expensive.
Soaring prices pose a challenge for the White House, especially when November’s midterm elections are fast approaching and sanctions and other economic responses to Russia’s war in Ukraine are likely to drive prices up. gas, at least in the short term.
The fastest inflation in most Americans’ lifetimes is also a problem for the Federal Reserve, which is charged with ensuring price stability. The central bank announced it would raise interest rates by a quarter of a percentage point this month, likely the first in a series of moves designed to raise the cost of borrowing and spending and slow the economy. ‘economy. By reducing consumption and slowing the labor market, the Fed is able to reduce pressure on inflation over time.
“Mortgage rates are going to go up, auto loan rates — all those rates that affect consumer buying decisions,” Fed Chairman Jerome H. Powell told lawmakers last week. “Housing prices won’t go up as much, and stock prices won’t go up as much, so people will spend less.”
Understanding Inflation in the United States
Even as the Fed prepares to rein in demand, high gas costs related to the conflict in Ukraine threaten to keep inflation high for longer. They could become a serious problem for central bank policymakers if they help convince consumers that the price spike will last. If people start to expect inflation, they can change their behavior in ways that make it more permanent – accept price increases more easily and ask for bigger increases to keep pace.
This is just the latest example, when it comes to prices, where what can go wrong seems to go wrong.
Rapid inflation began to kick in early last year, and economists initially predicted it would subside by the end of 2021 as the economy reopens from the pandemic and conditions would return to normal.
Instead, turmoil in supply chains has been met with strong consumer demand for goods, and price increases have accelerated. Now, the speed and extent of price moderation in 2022 is increasingly uncertain as overseas conflict threatens to keep shipping routes tangled and essential parts in short supply. Ukraine is a major producer of neon, which could keep computer chips in short supply, perpetuating the shortages that have plagued automakers. Higher energy costs could spill over to other industries.
There are still reasons to think that the price gains will slow down somewhat. From the March data, they will exceed the high values of last year, which should mechanically lower the measure on a year-over-year basis. But it’s unclear when they will return to the Fed’s 2% inflation target. The central bank defines this objective using a separate inflation indexbut which is also high.
For people like Timothy Gutbrod, 61 and a native of Albany, rapid inflation has led to lifestyle changes. Mr. Gutbrod, who previously worked as a theater actor, has been a driving instructor since March 2020, and the job earns him just over $30,000 a year. Since rising gas prices have made commuting and daily shopping more expensive, he eats less at restaurants.
For someone who was a lifelong Manhattanite, it’s a real loss, Mr. Gutbrod said. He used to enjoy three brunches or dinners at the restaurant each week. Now it’s more like one every two weeks.
“I used to go for relaxing rides,” he said, but now the rides are unaffordable. “I have a small budget and I work quite hard. For someone who doesn’t make a lot of money, you have to be smart and start taking shortcuts.
As it disrupts daily life, inflation is likely to catch up with Democrats and the administration as they fight to retain control of Congress in November. Despite plentiful jobs and rapidly rising wages, consumer confidence has fallen to its lowest lowest level since summer 2011, when the economy was recovering from the global financial crisis and Congress was bickering over raising the national debt ceiling.
This probably reflects, at least in part, the reality that wages do not quite keep up with inflation for the typical worker, and consumers pay more at the pump, which tends to be a very significant cost to Americans. Consumer expectations for short-term inflation have made significant progress.
What is Inflation? Inflation is a loss of purchasing power over time, which means your dollar won’t go as far tomorrow as it did today. It is usually expressed as the annual change in prices of common goods and services such as food, furniture, clothing, transport and toys.
The White House pointed out that part of the recent price increase was due to rising fuel prices, which had already risen significantly since the start of the year, attributing the spike to growing tensions in Ukraine. The administration is also emphasizing its efforts to untangle tangled supply chains.
“We have taken steps to eliminate bottlenecks in the supply chain, to reduce those bottlenecks,” said Jen Psaki, White House press secretary. said wednesday.
But those changes mostly helped around the edges, and Thursday’s new data also confirmed that price pressures extend beyond sectors hit by pandemic-related supply chain issues.
The rent for the main residence, for example, increased by 0.6% compared to the previous month – the fastest monthly rate growth since 1999.
Housing costs are a large part of the overall index and move very slowly and often in response to economic conditions, so Fed and White House officials will likely take note of this shift as something that could sustain high inflation.
Food prices are also rising sharply. Over the past year, grocery prices have risen 8.6%, the largest annual increase since the period ending in April 1981. In February, the cost of groceries, including fresh fruit and non-alcoholic beverages, has increased considerably.
But gas also mattered a lot. Soaring prices at the pump accounted for about a third of February’s increase in the consumer price index, the government said.
Policymakers will likely be watching the reaction of consumer sentiment and inflation expectations closely as the impact of Russia’s war on Ukraine ripples through oil markets, potentially pushing inflation even further. high in March – and perhaps leading consumers to expect the price hike to last.
“Survey metrics, especially for consumers, are even more sensitive to supply-driven spikes in oil than to demand-driven ones,” wrote Matthew Luzzetti, chief US economist at Deutsche Bank, and colleagues in a recent research note. “The tentative peak in inflation expectations could be at risk, as this oil price shock may feed through to higher inflation expectations in the months ahead.”