Soaring gasoline prices are pouring more fuel on the flames of inflation.
Inflation reached a 40-year high in February as pump prices, propelled by the Ukraine war, combined with rent, food and other rapidly rising costs to squeeze Americans already struggling with sky-high costs.
The consumer price index jumped 7.9% annually, the fastest pace since January 1982, the Labor Department said Thursday. That’s up from 7.5% in January, which was nearly a four-decade high.
Gasoline prices leaped 6.6% and made up nearly a third of February’s rise. Pump prices were up 38% from a year earlier.
Inflation has hit fresh 40-year highs for four straight months.
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As recently as January, economists had expected the price surges to ease by now as COVID-19 cases declined, pump costs leveled off and supply chain snarls at least started to unwind.
Russia’s invasion of Ukraine upended that sanguine forecast by raising the threat – and now the reality – of reduced oil supplies from Russia and intensified supply bottlenecks, especially for commodities shipped from the region. Worker shortages continue to trigger sharply rising wages, spurring companies to lift prices to maintain profits.
“The Ukraine-Russia conflict will only further stress supply chains, including agriculture and energy, and thus continue to add inflation pressures over the coming months,” Wells Fargo economist Sam Bullard wrote in a note to clients.
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Excluding volatile food and energy items, so-called core prices rose 6.4% in February, a four-decade high. On a monthly basis, overall consumer prices increased 0.8% in February while core prices advanced 0.5%.
When energy prices and supply troubles ease, March will probably represent inflation’s peak as annual price increases fall to about 3% by year-end, predicts Paul Ashworth of Capital Economics.
But Kathy Bostjancic of Oxford Economics says the Russia-Ukraine war “will lead to a higher near-term peak in inflation and a slower descent through 2022 than previously envisaged.”
In February, food costs increased 1% from the prior month and 7.9% over the past year. The price of bacon was up 18.8% from a year ago; chicken, 13.2%; fish, 10.4%; and eggs, 11.4%, as all notched steady monthly advances. Rent increased 0.6% compared with the prior month and 4.2% annually.
Air fares jumped 5.2% from the previous month as airlines passed along higher jet fuel costs to passengers, pushing the annual increase to 12.7%. Hotel rates rose 2.2% and 25.1% over the past year.
Prices increased 12.4% annually for new vehicles, 6.6% for apparel, 9.7% for household furnishings and 4.3% for medical care services.
Consumers got some relief from skyrocketing used car and truck prices, which dipped 0.2%. That still left prices up 41.2% from a year ago.
Until the Russian invasion of Ukraine, the pandemic was the chief culprit behind the historic bout of inflation.
Consumers who snapped up goods such as TVs and appliances while stuck at home during the health crisis began dining out and traveling more. Many were ready to splurge after they built up more than $2.5 trillion in savings from federal stimulus checks and enhanced unemployment benefits, as well as from cutting back during the lockdowns.
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A supply network hobbled by the pandemic wasn’t prepared for the spending sprees. Many overseas factories are running at partial capacity. Shipping containers are in short supply. Many truck drivers and warehouse workers were still caring for kids at home or fearful of contracting COVID-19.
Thursday’s report probably bolsters the Federal Reserve’s plans to raise interest rates next week for the first time in more than three years to contain inflation. Fed Chair Jerome Powell told Congress last week he intends to support a quarter-point hike in the central bank’s key short-term rate, which the Fed slashed to zero in March 2020 to help pull the nation from the pandemic-induced recession.
Bostjancic expects the Fed to raise the rate by 1.75 percentage points this year.
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