Tuesday, October 4, 2022

A key inflation gauge jumped 6.6 percent in March, possibly nearing a peak

WASHINGTON (AP) — Inflation gauges closely tracked by the Federal Reserve rose 6.6 percent in March from a year earlier, the highest 12-month jump in four decades and further evidence that price increases in the household budget and putting pressure on the health of the economy. ,

Yet Friday’s report from the Commerce Department indicated that inflation may slow to a gallop and may peak, at least for now.

And despite rising prices, consumer spending rose faster than inflation for the third month in a row, indicating rising prices have not cooled Americans’ desire to shop. The pandemic’s ramifications for the economy are also fading as consumers shift their spending back to experiences such as travel, concerts and eating out. It follows two years of pandemic spending on furnishings, such as exercise bikes, patio furniture and standing desks.

Switching to services helps control inflation because prices for services are rising more slowly than for goods.

Excluding particularly volatile food and energy categories, so-called core prices rose 5.2 percent in March from a year earlier. This was slightly lower than the year-on-year increase of 5.3 per cent in February, and it was the first time that the 12-month figure has declined since February 2021, before inflationary growth began. And on a month-to-month basis, core prices rose 0.3 percent from February to March, which was the same from January to February. Previously, it had risen by half a point for four consecutive months.

WATCH: As US economy slows, fears of a possible recession mount

“It’s really nice to see a slowdown in (core inflation),” Bill Adams, chief economist at Comerica Bank, said in an email to customers. “Inflation may peak in March, although the evidence is still a bit fuzzy. But the inflation momentum is still very strong.”

Overall inflation rose 0.9 percent in February to March, the biggest one-month increase since 2005. Gas prices rose 18% in March itself. But they have declined slightly since this month, another sign that inflation may start to ease gradually.

Consumers increased their spending by 1.1 percent last month, more than many economists expected. The gains largely reflect higher prices at gas pumps, grocery stores and other places where Americans shop for necessities. But adjusted for inflation, spending rose 0.2 percent.

The sharp rise in wages and salaries is helping many consumers handle the higher costs. A separate report from the Labor Department Friday showed that before adjusting for inflation, workers’ wages and benefits rose 1.4 percent in the first three months of the year. This was the highest such increase on record two decades ago.

Yet the gains are not large enough to fully offset the higher prices. In the last one year, salaries and benefits have increased by 4.7 per cent. But after adjusting for inflation, they have declined by 3.7 per cent.

WATCH: How the White House is Trying to Fight Inflation and What It Means Politically

This decline helps explain why Americans are taking an increasingly negative view of the economy. Nearly a third of the respondents to a Gallup poll released on Thursday cited inflation as the most important financial problem their families are facing today, compared to less than one in 10 who said so a year ago. .

Consumers are keeping up with their spending by digging into the extra savings they’ve made during the pandemic. The savings rate fell to 6.2 per cent in March, the lowest level since 2013.

A smaller savings pool may eventually deter consumers, but that’s unlikely anytime soon.

Americans have about $2.1 trillion more in savings than before COVID, with some of that cash in the bank accounts of low-income Americans. Bank of America economists note that, according to the bank’s data on checking and savings accounts, accounts from households earning $50,000 a year in February averaged about $3,000 — nearly double the pre-pandemic level.

High inflation and strong wage growth are prompting the Federal Reserve to plan a series of sharp interest rate hikes in the coming months. The Fed is set to raise its benchmark short-term rate by half a point next week, a sharper move than its typical quarter-point increase and the first increase since 2000.

Even outside the United States, inflation is rising, forcing other central banks to either raise interest rates or move closer to doing so. Inflation in the 19 countries that use the euro rose to a record high of 7.5 percent in April from a year earlier.

In Europe, the rise in energy prices stemming from Russia’s invasion of Ukraine is playing a large role in driving inflation. The European Central Bank may raise rates in July for the first time since the pandemic, even as the war has slowed growth in the sector.

The gloom that has engulfed public opinion as inflation intensifies, posing a growing political threat to President Joe Biden and the Democrats running for Congress. Biden points to a strong job market and solid consumer spending as evidence that his policies have helped Americans. But that view absorbed a shock on Thursday, when the government reported that the economy had indeed contracted at a 1.4 percent annual rate in the first three months of this year.

How consumers react to increased prices — and much higher interest rates from the Federal Reserve — is one of the unknowns facing the economy this year.

Moody’s Analytics estimates that the average household is spending $327 more each month to buy the same things they bought a year ago.

Nation World News Desk
Nation World News Deskhttps://nationworldnews.com
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