(The Hill) – More Americans may find their dollar not going as far as it did under the sting of rising inflation as price stickers on food, gas and other goods and services soar across the country.
Data released this week by the Labor Department showed consumer prices rose 1.2 percent last month and 8.5 percent annually. The annual increase marks the highest in about four decades as the Russo-Ukrainian war exacerbates the country’s inflation problem.
Some economists are hopeful that prices for things like fuel will soon peak, but warn that other higher prices could remain so for a while.
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meal
According to the new report, rising food prices are one of the biggest contributors to inflation, with prices rising 1 percent in March and 8.8 percent over the past 12 months.
The Labor Department said prices for six major food groups surged in March, including a 1.5 percent hike in the price of fruits and vegetables, grains and baked goods; a 1 percent increase in meat, poultry, fish and egg prices; and a 1.2 percent increase in dairy and related products.
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Marc Goldwein, senior vice president and senior policy director of the Committee on Responsible Federal Budgeting, said in an interview that prices fluctuate dramatically from month to month, noting that food prices in particular can be “more volatile” in nature.
Still, Goldwein told The Hill that the increases are “extremely high.”
“If you think of headline inflation, in a normal year it’s 2.5 percent over the year, so 0.2 percent a month… but 1 percent is extremely high for monthly growth, and 1.5 percent is even higher.” said Goldwine.
Goldwein said food prices have been on the upswing, driven in part by demand and to a lesser extent by other supply chain issues. The war in Ukraine, an exporter of certain grains and other foods, could affect global prices, which he says “raises the domestic price.”
gas
Energy prices rose 11 percent last month, and gasoline prices rose 18.3 percent in March after rising 6.6 percent the month before — a jump that economists also largely blamed on the Russian invasion of Ukraine and the opposition Moscow-imposed sanctions have attributed.
“We definitely talked about gasoline inflation last year. But what happened as a result of the invasion took it to a new level of horror,” said Wendy Edelberg, director of the Hamilton Project and senior economic studies fellow at the Brookings Institution.
In its consumer price index (CPI) on Tuesday, the Labor Department said gasoline prices accounted for more than half of monthly increases across all items.
Goldwein said he hoped fuel prices would peak soon, but added there could also be “a second spike” in the coming months.
Goldwein said there are certain “unique things” that could explain changes in inflation. But he added that “very broad-based inflation” persists across the country’s economy, mainly driven “not by these supply shocks but by oversaturated demand with very low interest rates and fiscal stimulus.”
Protection
The Labor Department identified March housing prices as the largest contributor to price increases for all items minus food and energy.
Emergency housing prices rose 0.5 percent last month – which the agency said “constituted almost two-thirds of the monthly increase in the index for all items excluding food and energy”. Rental rates rose 0.4 percent over the same period, and rates in the out-of-home category rose 3.3 percent.
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Last year, accommodation prices rose 5 percent, the highest annual increase in over 30 years, according to the agency. Prices for household equipment and utilities rose 10.1 percent in the same window, the highest annual increase for the grouping in nearly five decades.
Edelberg pointed to several potential factors at play in the migration.
“I think there has been a big shift in demand for different types of housing as a result of the pandemic. People wanted more space, people wanted to live in different places, people wanted to rent in different places,” said Edelberg, noting at the same time that mortgage rates for owner-occupied housing were falling.
“That drove up house prices because people could afford higher mortgages, and I think, generally speaking, our housing stock has been very difficult to expand where there’s more demand,” she said.
This surge in demand, which Edelberg said was fueled by “more tax support and cuts in other types of spending,” has “only encountered a shortage of housing where people want it and some price stability there, where people don’t want to live.”
“So we don’t see rents going down where people don’t want to live enough to offset the fact that rents are going up where people want to live,” she said.
air fares
Airfares rose 10.7 percent last March, more than double February’s rate. Economists have linked the jump to a surge in demand for an industry hard-hit during the pandemic, as well as rising fuel prices.
Edelberg said she expects airlines and several other services that had previously seen sharp falls in demand, including recreation services, leisure and hospitality services and higher education services, all to make a comeback.
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She also noted that the airline industry is “very labor intensive.”
“You have to be able to hire workers. So what will drive service sector inflation is what happens to labor demand and labor supply in that sector going forward,” she said. “And there are a lot of unknowns because we need people to feel comfortable working in personal service fields again.”
Medical
Medical service prices rose 0.5 percent last month, as did doctor service prices, while hospital service prices rose 0.4 percent.
Goldwein said medical supply prices are growing only slightly above target levels.
A big part of the reason, he said, is that prices are mostly set “through negotiation with insurance companies or by Medicare earlier in the year based on expected inflation.”
“And the good news is that people kind of expected inflation this year, but they did, it was kind of a self-fulfilling prophecy in healthcare, actually,” he said. “So we haven’t seen a lot of healthcare inflation.”
However, Goldwein said the downside is that “the economy’s other shoe hasn’t come off yet because people are probably expecting higher inflation for next year.”
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