Inflation in the United States accelerated in March as prices rose 8.5 percent year-on-year. It was the largest annual increase since December 1981, when energy prices soared because of the Russian war in Ukraine.
The White House and Federal Reserve have launched several initiatives to curb soaring prices, but higher costs seem to be everywhere, especially in consumer goods that most families can’t live without. Gasoline, groceries and a host of other products have become significantly more expensive, causing economic strains on households and businesses and political problems for the White House and congressional Democrats.
The economy is now expected to grow more slowly later this year, in part because inflation is causing families and businesses to reconsider certain purchases and possibly tighten the brake on spending.
Inflation data released by the Bureau of Labor Statistics on Tuesday showed prices rose 1.2 percent in March compared to February. Increases in the price of petrol, housing and food were the main contributors to inflation, underscoring how inevitable these cost increases have become.
Inflation has been relatively stable, even low, for much of the last decade, but picked up significantly as the global economy emerged from the pandemic. A number of economists and policymakers thought inflation would ease this year as supply chain issues cleared up and government stimulus eased. But Russia’s invasion of Ukraine in February prompted a fresh bout of uncertainty and pushed prices even higher.
Despite a relatively strong job market, widespread inflation has made economic output a major pain point for President Biden and the Democrats. The government has attempted to rebrand the recent spike in inflation as the “Putin price hike.” But that rhetoric doesn’t seem to have lifted Biden’s approval rating for the economy ahead of midterms 2022.
World leaders have responded to Russia’s invasion of Ukraine by trying to isolate Moscow economically, but that has only led to more economic uncertainty.
Russia is one of the world’s largest oil producers, and its invasion of Ukraine prompted the US government and others to try to limit Russia’s ability to sell energy. These steps drove up energy costs; Crude oil rose to new highs last month, and soaring gasoline prices quickly followed. Russia and Ukraine are also big producers of wheat and other commodities, and prices for these products have also risen.
With gas prices still above $4 a gallon in much of the country, the White House has tried to come up with new policies to help, such as releasing oil from the Strategic Petroleum Reserve. And the Biden administration announced Tuesday that the Environmental Protection Agency would allow some type of gasoline blend to be sold in the summer to create more supply, though the exact impact of that is unclear. Only 2,300 of the country’s 150,000 service stations offer the affected E15 gasoline.
Speaking Tuesday at a biofuel company in Menlo, Iowa, Biden said the administration had already made progress on cutting gas prices since March, and the White House will work harder to cut the cost of food and gasoline, especially in light of the invasion of Russia.
“I’m doing everything in my power to lower the price and address the Putin price,” Biden said. “We have already made progress since the inflation data was collected in March. Your family budget, your ability to fill up your tank — none of this should depend on whether a dictator declares war or commits genocide halfway across the world.”
The administration’s announcement on Tuesday was unconvincing for Republican lawmakers, who have long criticized the Fed and White House for being too slow in tackling inflation.
“Inflation just hit 8.5 percent for the fifth straight month — a new 40-year high,” tweeted Sen. Patrick J. Toomey (Pa.), the top Republican on the Senate Banking Committee. “American paychecks are worth less every month. Unfortunately, the government’s new plan to counter rising gas prices by forcing more ethanol into the system will likely lead to higher corn, ie food, prices. That has to be a wake-up call for the White House.”
The March inflation report showed how much energy prices have risen over the past year. Overall, the energy index rose by 32 percent in the past 12 months. The gasoline index grew 18.3 percent in March after rising 6.6 percent in February.
Even though crude oil prices have eased in recent weeks, the sticker shock at the gas pump continues to cloud many Americans’ attitudes toward the broader economy.
The food index rose 1 percent in March compared to February. It’s up 8.8 percent over the previous 12 months, the largest increase since May 1981. Few categories are untouched. Breakfast cereals rose 2.4 percent from February to March. Rice prices rose 3.2 percent, ground beef 2.1 percent and eggs 1.9 percent. Milk was up 1.3 percent, potatoes were up 3.2 percent and canned fruits and vegetables were up 3.8 percent.
Rents rose by 4.4 percent year-on-year, in March alone by 0.4 percent compared to February.
In Austin, Iris Poole sticks to her signature grocery store: milk, eggs, butter, canned food, and chicken when it’s on sale. She only buys generic private label items. Two weeks ago, her bill went from about $60 to $85. She said she saves money on gas by carpooling with friends, walking to events around town and working from home.
Poole is the operations manager of a streetwear brand and often hears about the rising cost of living from customers who can’t find room in their budgets for new clothes. Their own spending had to change, too.
“I have less budget now because of what’s happened in the last two years,” Poole said. “I just want to eat and take care of my needs.”
Catherine D’Amato, president and chief executive officer of the Greater Boston Food Bank, said food insecurity in eastern Massachusetts is still 30 percent above pre-pandemic levels. D’Amato said one of the pantry partners recently went from 400 households a week to 500.
Such widespread inflation is forcing families to make difficult compromises, D’Amato said, as people decide whether to spend money on higher heating bills, higher gas bills or higher grocery bills.
“Every person has their own rate of inflation,” D’Amato said. “If you have to put gas in your car or pay for things for your kids or clothes or your utility bills or your rent, you’re going to take money away from the food.”
Just a few months ago, White House and Federal Reserve officials were hoping that month-on-month inflation would start to fall. But those projections were quickly dashed by the Russian invasion, coronavirus shutdowns in major Chinese manufacturing hubs, and the grim reality that inflation continues to seep through every crack in the economy.
“You can’t escape that even if you wanted to,” said Joe Brusuelas, chief economist at RSM. “This will continue for a while.”
Persistently high inflation comes as economists and analysts increasingly fear an impending economic slowdown. In March, Bank of America analysts lowered their estimates for growth in 2022 to 3.3 percent from 3.6 percent. The US Federal Reserve also recently downgraded its GDP forecasts, with officials warning that the war in Ukraine is threatening the world order.
Fed officials say the economy is still in a position of strength amid low unemployment and relative strength in fiscal balance sheets. But as the Fed looks to rein in inflation, it will seek to cool the economy without contracting the overall economy.
But it’s unclear just how severe a slowdown might be ahead or how months of inflation will weigh on economic growth.
“Anytime inflation is a little higher, I expect … a little lower real growth,” said Marc Goldwein, senior vice president and senior policy director of the Committee on Federal Budget Responsibility. “We’re getting to the point where inflation is kind of eating away at production.”
Still, the March inflation report offered some optimism. Used car and truck prices have weighed heavily on inflation as a global semiconductor shortage collides with overwhelming consumer demand. But in March, the index for used cars and trucks fell 3.8 percent, posting the second straight month of decline.
Inflation has emerged as one of the worst features of the pandemic recovery, taking a direct toll on budgets across the country. Rents are rising, groceries are becoming more expensive and wages are plummeting for families just trying to cover the necessities. And households are not expecting a quick reprieve. New York Fed survey data showed that in March 2022, US consumers expected inflation at 6.6 percent over the next 12 months, up from 6.0 percent in February. That was the highest reading since the survey began in 2013 and a steep month-on-month jump.
To try to stem inflationary growth, the Fed implemented its first rate hike since the pandemic began in mid-March and scheduled six more for later this year. In recent weeks, officials have been signaling that even more aggressive rate hikes could occur in the coming months.
“The expectation going into this year was that inflation would peak in the first quarter and then maybe flatten out,” Fed Chair Jerome H. Powell said in March. “This story has already fallen apart. As it continues to fall apart, my colleagues and I may decide that we need to act faster.”
Andrew Van Dam contributed to this report.
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