US inflation rose to 8.5% last year, the highest since 1981

Across the economy, year-on-year price rises were widespread. Petrol prices have risen by 48% in the last 12 months. Used car prices rose 35%, although they actually fell in February and March. Bedroom furniture rose 14.7% and men’s clothes and coats 14.5%. Grocery prices rose 10%, including an 18% increase for both pork and oranges.

Investors focused on a bright spot in the report and raised stock prices: Excluding volatile food and energy prices, the so-called core inflation, which rose only 0.3% from February to March, was the lowest monthly rise since September. However, over the past year, core prices have risen 6.5%, the highest since 1982.

Christopher Roopke, chief economist at FWDBONDS LLC, said: “Inflation is still under control.

March inflation was the first to fully capture the rise in petrol prices following Russia’s invasion of Ukraine on February 24. Moscow’s attacks have imposed Western sanctions on the Russian economy and disrupted food and energy markets. According to the AAA, the average price of a gallon of petrol – $ 4.10 – is up 43% from a year ago, although it has fallen over the past two weeks.

The acceleration of inflation has taken place against the backdrop of a growing job market and a solid overall economy. In March, employers added a strong 431,000 jobs – adding at least 400,000 jobs for the 11th month. In 2021, they will add 6.7 million jobs. In addition, jobs are nearing record highs, layoffs are at an all-time low after 1968, and the unemployment rate is over half a century.

Rising energy prices, a potential threat to the longevity of the economy, led to higher transportation costs for exporting goods across the economy, which contributed to higher prices for consumers. Pressing on the gas pump feels particularly hard.

Jason Emerson, of Auckland, California, said of his car, “This is an extra dollar per gallon.” My eggs are more than a dollar. So everything will increase by at least a dollar, you know.

Recent inflation figures confirm expectations that the Federal Reserve will raise interest rates aggressively in the coming months in an effort to reduce borrowing and spending and control inflation.

Kathy Bostjancic, an economist at Oxford Economics, said she expects inflation to be 9% year-on-year in May and then “start a slow descent.” And some economists say inflation is at or near the peak. As federal stimulus aid expires, consumer demand and wages fall behind inflation, households drain more of their savings and the central bank raises rates sharply, all of which can be slowly linked to inflation.

But that can take time. Strong spending, steady wage rises and chronic supply shortages are still fueling inflation. In addition, housing costs have risen by a third in the consumer price index, which is unlikely to turn upside down at any time.

As the economy emerges from the depths of the epidemic, economists point out that consumers are gradually expanding their spending to include more services beyond goods. As a result, high inflation, which initially reflected shortages of goods – from cars and furniture to electronics and sports equipment – is also emerging in services such as travel, health and entertainment. For example, air fares have risen by an average of 24% in the last 12 months. The average price of a hotel room is 29% higher

The expected rapid pace of central bank rate hikes will make lending to consumers and businesses more expensive. Although mortgage rates, in particular, have not been directly affected by the central bank, they have risen sharply in recent weeks, making home buying more expensive. Many economists worry that the central bank has been waiting too long to raise rates and could act aggressively enough to trigger a recession.

The U.S. public expectation for inflation over the next 12 months has reached its highest point – 6.6% – in a survey conducted by the Federal Reserve Bank of New York since 2013. Once the general expectations for inflation are met, they can fulfill themselves: workers generally demand higher wages to offset their expectations for inflation. Businesses are raising prices to offset their high labor costs. This could set the last wage-price cycle the country endured in the late 1960s and 1970s.

Inflation, which had been largely under control for four decades, began to accelerate last spring as the US and world economies recovered with unexpected pace and strength from the brief but devastating corona virus recession that began in the spring of 2020.

Many Americans are getting wage increases, but inflation has eroded those gains for most people. In February, after calculating inflation, the average hourly wage was 2.7% lower than the previous year. This is the 12th consecutive month of declining inflation-adjusted wages.

Yet, now that the job market is healthy, inflation has not yet reduced overall consumer spending. Levi Strauss & Co., for example, does not seem to have surprised its customers with its price hikes.

Macri’s chief financial officer Adrian Mitchell warns that high inflation in the long run will lead consumers to choose: they can spend less on department store items and more on services such as travel and dinner.

“We believe consumers are going to spend,” Mitchell said. “But are they going to spend on the preferred items we sell, or are they going to spend more on air tickets or air travel or restaurants in Florida?”

In Atlanta, Shirley Hughes had to raise prices at her bakery, Sweet Seeds, as prices of items such as eggs and milk continued to rise. Two years ago, a 36-pound container of butter was priced at $ 75. Now, it’s $ 145. Thirty dozen eggs $ 50. Now, they are $ 75 – and even that price is only possible if Hughes takes it himself instead of delivering them. He raised the price of his six-inch cake from $ 5 to $ 50.

So far, he said, people have generally accepted his high price. But there are limitations. A customer wanted to deliver a six-inch cake to her boyfriend – in an hour’s drive. Hughes will make a cake for her and deliver it for about $ 200.

The customer canceled.

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De Innocencio and Anderson reported from New York. Terence Sea, an AP video journalist based in Auckland, California, contributed to the report.

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