Gasoline boosted US consumer prices in March


A customer refuels a vehicle at a Mobil gas station on Beverly Boulevard in West Hollywood, California, U.S., March 10, 2022. REUTERS/Bing Guan/File Photo

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WASHINGTON, April 11 (Reuters) – U.S. consumer prices probably rose the most in 16-and-a-half years in March as Russia’s war on Ukraine drove the cost of gasoline to lows record high, driving annual inflation to its fastest pace since the early 1980s.

Tuesday’s Labor Department consumer price report would seal the case for the Federal Reserve to raise interest rates by 50 basis points next month. That would follow last month’s data showing the unemployment rate fell to a new two-year low of 3.6% in March.

The US central bank raised its key interest rate by 25 basis points in March, the first increase in more than three years. Minutes from the policy meeting released last Wednesday seem to pave the way for big rate hikes in the future.

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“Inflation is reaching a crescendo not only because of what is happening in Ukraine, but also what has happened in the past, such as the government’s massive stimulus measures and the Federal Reserve’s money printing” , said Sung Won Sohn, professor of finance and economics at Loyola Marymount University. in Los Angeles. “We should expect a half-point rate hike next month.”

The consumer price index likely jumped 1.2% in March, according to a Reuters survey of economists. This would be the largest monthly gain since September 2005 and would follow a 0.8% advance in February. Gasoline prices averaged a record high of $4.33 a gallon in March, according to AAA.

Although gasoline was likely the main driver of inflation last month, strong contributions were expected from food and services such as rental housing. Russia is the world’s second largest exporter of crude oil. The United States has banned imports of Russian oil, liquefied natural gas and coal as part of a series of sanctions against Moscow for its invasion of Ukraine.

Russia and Ukraine are major exporters of commodities like wheat and sunflower oil. In addition to driving up gasoline prices, the Russian-Ukrainian war, now in its second month, has led to a global spike in food prices.

High inflation readings and the Fed’s hawkish stance left the bond market fearful of a US recession, although most economists expect the expansion to continue.

In the 12 months to March, the CPI is expected to rise 8.4%. It would be the largest year-on-year gain since January 1982 and would follow a 7.9% jump in February. It would be the sixth consecutive month of annual CPI readings north of 6%.

PEAK INFLATION?

Economists believe March would mark the peak of the annual CPI rate, but warn that inflation will remain well above the Fed’s 2% target until at least 2023. Gasoline prices retreated from record highs, but still remain above $4 per gallon.

Last year’s high inflation readings will also begin to fall from the CPI calculation.

“However, inflation’s descent will remain painfully slow for consumers, businesses and policymakers,” said Sam Bullard, senior economist at Wells Fargo in Charlotte, North Carolina. “Services inflation, which includes housing, shows no signs of slowing anytime soon.”

A moderation in used car and truck prices likely resulted in a weak monthly reading for core inflation.

Excluding the volatile food and energy components, the CPI should rise 0.5% after a similar advance in February. That would translate to a 6.6% rise in the so-called core CPI in the 12 months ending in March, the biggest gain since August 1982, after rising 6.4% in February.

“Factors like used cars and unfavorable base effects could even cause core inflation to appear to slow for a few months this spring,” said Veronica Clark, an economist at Citigroup in New York. “That would likely be short-lived, with further upside risks from higher commodity prices and supply disruptions materializing over the summer, which could cause markets to revise expectations. more hawkish for the Fed.”

Lockdowns in China to contain a resurgence in COVID-19 infections appear to be putting more pressure on global supply chains, which could keep commodity prices high. Moreover, the rise in housing rents should also keep underlying inflation at a high level.

A key measure of rents, owner-equivalent rent of primary residence, accelerated 4.3% year-on-year in February, the fastest since January 2007.

Economists say this gauge tends to lag behind measures of private sector rents. Although these measures have shown signs of slowing, economists do not expect this to be reflected in CPI data for some time. Landlords slashed rents early in the pandemic as people deserted cities, but the reopening of the economy has boosted demand for housing.

“The robust recovery in labor markets, rising labor incomes and healthy household balance sheets should support rental demand even in an environment of high prices, at least in the short term,” said Michael Pond, head of research. on inflation at Barclays in New York. “The peak in CPI rents may still be at least a quarter away, but given the recent moderation in private rent measures, we will caution against extending the trend well above levels pre-pandemic until 2023.”

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Reporting by Lucia Mutikani; Editing by Andrea Ricci

Our standards: The Thomson Reuters Trust Principles.

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