Inflation soars to new 41-year high of 8.5%

America goes back to the 80s: Surging gas prices and higher rents push inflation to 41-year high of 8.5% as White House blames it on Putin invading Ukraine

  • The consumer price index rose 8.5% in March from a year ago, the fastest increase since December 1981
  • Housing costs, which make up about a third of the index, have escalated and show no signs of cooling 
  • Gasoline prices soared 49% in March from a year ago as the war in Ukraine rocked energy markets  
  • Biden’s administration tried to get ahead of the dire inflation news by blaming Russian leader Vladimir Putin
  • But Republicans place the blame for soaring prices on ‘Democrats’ reckless spending and failed policies’

Inflation in the US has hit a 41-year high of 8.5 percent, as soaring gasoline and housing costs punish consumers and erase gains from higher wages. 

The inflation data released on Tuesday is the first report to capture the full effect of Russia’s invasion of Ukraine, which sent gas prices skyrocketing 49 percent in March, compared to the same time a year ago. 

Rising housing costs, which make up about a third of the consumer price index, are also fueling inflation as rents soar across the country.   

The latest data showed the price of basic necessities rising sharply, with groceries up 10 percent from a year ago, rent rising 4.4 percent, clothing up 6.8 percent, and energy costs rising 32 percent. 

Soon before the new report, President Joe Biden ‘s administration tried to get ahead of the dire inflation news by blaming Russian leader Vladimir Putin’s invasion of Ukraine.

The consumer price index increased 8.5% in March from a year ago, a 41-year high

President Joe Biden ‘s administration tried to get ahead of the dire inflation news by blaming Russian leader Vladimir Putin ‘s invasion of Ukraine

White House press secretary Jen Psaki said during Monday’s briefing that the White House expected ‘headline inflation to be extraordinarily elevated due to Putin ‘s price hike.’

Inflation has become a top political threat to Biden and congressional Democrats as the crucial November midterm elections draw closer. Small business owners now say in surveys that it’s their primary economic concern, too. 

Though Biden insists that his policies aren’t to blame for soaring prices, Republican critics have been quick to point the finger at his administration and Democrats in Congress. 

‘Prices are up, real wages are down, and families and small businesses are being left behind in Biden’s economy,’ said Republican National Committee Chairwoman Ronna McDaniel in a statement responding to the latest inflation reading.

‘Democrats’ reckless spending and failed policies have crushed Americans, and they don’t seem to care. Voters do care, and they will be sending a message in November,’ added McDaniel.

White House economic advisor Jesse Lee responded in a tweet saying that Republicans who blame Biden for inflation are ‘fully in lockstep’ with Putin.

The Labor Department said on Tuesday that the consumer price index increased 1.2 percent in March from the month before, for a 8.5 percent gain from a year ago. 

It is the largest annual gain since December 1981. Excluding volatile food and energy, prices rose 6.5 percent in the 12 months ending in March.  

In this April 6, 1983 protesters are seen after the 1981-82 recession, which came after the Fed imposed harsh interest rates to rein in out-of-control inflation. Now economists forecast a 40% chance of a new recession in the next year 

Rent of primary residence rose 4.4% in March from a year ago, the fastest increase since 2007

The last time inflation was this high, Reagan was in office and the ‘Great Inflation’ was ending

The ‘Great Inflation’ period from 1965 to 1982 was marked by soaring inflation that topped 14 percent by 1980

The new data puts inflation at the highest level since 1981, when the period known as the ‘Great Inflation’ was coming to a close.

Spurred by failed monetary policy and two oil crises in 1973 and 1979, the period from 1965 to 1982 was marked by soaring inflation that topped 14 percent by 1980.

Consumers suffered greatly from the rising prices, and outrage over the inflation crisis contributed to Ronald Reagan’s win over one-term incumbent President Jimmy Carter in 1980. 

‘Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man,’ Reagan famously said on the campaign trail, and he devoted the first years of his presidency to tackling the issue. 

Reagan’s controversial economic policy had four key pillars: reducing government spending, slashing taxes, reducing regulations, and tightening the monetary supply through higher interest rates.

Naysayers claimed at the time that Reagan’s policies would drive prices even higher, but history proved them wrong and inflation was soon back to sustainable levels.

Even before Russia’s war further spurred price increases, robust consumer spending, steady pay raises and chronic supply shortages had sent U.S. consumer inflation to its highest level in four decades. 

In addition, housing costs, which make up about a third of the consumer price index, have escalated, a trend that seems unlikely to reverse anytime soon as landlords try to claw back losses sustained during the pandemic.

Gas prices did soar in March in response to Russia’s invasion, contributing significantly to last month’s inflation rate. 

According to AAA, the average price of a gallon of gasoline on Tuesday – $4.10 – is up 43 percent from a year ago, though it has fallen off record highs in the past couple of weeks.  

Biden on Monday announced a temporary suspension of rules forbidding the sale of ethanol-blend gas during the summer months in a bid to reduce pain at the pump.

Normally, E15 gasoline—gasoline that uses a 15 percent ethanol blend—is not sold from June to September due to air quality concerns. 

The March inflation numbers are the first the capture the full surge in gasoline prices that followed Russia’s invasion of Ukraine on February 24. 

Moscow’s brutal attacks have triggered far-reaching Western sanctions against the Russian economy and have disrupted global food and energy markets. 

The escalation of energy prices has led to higher transportation costs for the shipment of goods and components across the economy, which, in turn, has contributed to higher prices for consumers.

‘The war in Ukraine has complicated the inflation outlook,’ Luke Tilley, chief economist at Wilmington Trust, told the AP.

Economists point out that since the economy emerged from the depths of the pandemic, consumers have been gradually broadening their spending beyond goods to include more services. 

A result is that high inflation, which at first had reflected mainly a shortage of goods – from cars and furniture to electronics and sports equipment – has been gradually emerging in services, too, like travel, health care and entertainment.

The latest evidence of accelerating prices will solidify expectations that the Federal Reserve will raise interest rates aggressively in the coming months to try to slow borrowing and spending and tame inflation. 

The financial markets now foresee much steeper rate hikes this year than Fed officials had signaled as recently as last month.

The expected fast pace of the Fed´s rate increases will make loans sharply more expensive for consumers and businesses. 

Mortgage rates, in particular, though not directly influenced by the Fed, have rocketed higher in recent weeks, making home buying more expensive. 

Many economists say they worry that the Fed has waited too long to begin raising rates and might end up acting so aggressively as to trigger a recession. 

Economists polled by Reuters now see the probability of a recession next year at 40 percent. 

Gas prices have fallen off the record highs set last month, but remain well above historical averages

A bicyclist rides past a price board at a gas station in San Francisco on April 4

Inflation has now replaced ‘labor quality’ as the number one problem for small businesses, according to a new survey from the National Federation of Independent Business.

‘Inflation has impacted small businesses throughout the country and is now their most important business problem,’ said NFIB Chief Economist Bill Dunkelberg. 

‘With inflation, an ongoing staffing shortage, and supply chain disruptions, small business owners remain pessimistic about their future business conditions.’

Thirty-one percent of owners surveyed reported that inflation was the single most important problem in their business, up five points from February and the highest reading since the first quarter of 1981. 

Inflation, which had been largely under control for four decades, began to accelerate last spring as the U.S. and global economies rebounded with unexpected speed and strength from the brief but devastating coronavirus recession that began in the spring of 2020.

The recovery, fueled by huge infusions of government spending and super-low interest rates, caught businesses by surprise, forcing them to scramble to meet surging customer demand. 

Factories, ports and freight yards struggled to keep up, leading to chronic shipping delays and price spikes.

Critics also point to the Biden administration’s $1.9 trillion March 2021 stimulus program, which included $1,400 relief checks for most households, for helping overheat an already sizzling economy.

Many Americans have been receiving pay increases, but the pace of inflation has more than wiped out those gains for most people. 

In February, after accounting for inflation, average hourly wages fell 2.5 percent from a year earlier. It was the 11th straight monthly drop in inflation-adjusted wages.

Developing story, more to follow. 

Source: Read Full Article