US inflation hit a four-decade peak of 7.9% in a sign of worse to come as gas prices continue to rise.
The price rises, the fastest since 1982, were in line with economists’ expectations, and did not yet factor in the impacts of rising commodities prices from Russia’s invasion of Ukraine.
But strong rebounds in demand from Covid, pay rises and soaring house prices, which account for a quarter of US CPI, have led to historic inflation even before the invasion effects are factored in.
Core inflation, which strips out the effects of volatile energy prices, was up 6.4%, 0.1 percentage point above expectations.
Gas prices have risen more than 20% in the US in the last month to US$4.32 as supply patterns from Russia become less reliable, while wheat shortages could also begin to weigh on food costs, indicating more pain to come at the pump and in the supermarket for consumers.
“The concentration of CPI gains in the goods and commodity categories is sure to hurt the spending power of lower income consumers more acutely, at places like the grocery store, the gas pump, and the clothes shop,” said Caleb Thibodeau, senior associate at Validus Risk Management.
“Services remain under little pressure in areas like shelter, transportation and medical relatively speaking, with no remaining traces of the re-opening demand shock.”
Inflation is the top concern among the US public based on polling, with Thibodeu noting political pressure is weighing on Biden to respond following his State of the Union address.
“It will take a formidable change in circumstances to steer the Fed away from a hike next Wednesday and at all subsequent FOMC meetings this year.”