US inflation rose to 8.5% in March, the highest rate since 1981 US economy

US prices have risen at their fastest levels since 1981, rising 8.5 percent year-on-year to the end of March as Ukraine’s war raises energy costs for Americans, the Department of Labor said Tuesday. .

The latest Consumer Price Index (CPI) – which measures the prices of a basket of goods and services – comes after the index rose 7.9% year-on-year to February, the fastest annual inflation rate in 40 years.

Driven by ongoing supply chain problems, rising demand and rising energy prices, inflation is now at levels never seen before in the United States since Ronald Reagan took the White House from Jimmy Carter.

Price increases are wide – with rental, gas and food costs causing particular hardship for lower-income Americans and a major blow to the Biden administration, which now faces difficult chances of retaining control of Congress in the midterm elections in November. .

Rising gas prices have been the main driver of the rise. The gasoline index rose 18.3% in March, accounting for more than half of the monthly increase in all items. Gas prices have begun to fall, a sign that some economists may suggest that inflation has peaked.

The food index rose 1% in March compared to February and rose 8.8% over the previous 12 months. The prices of canned fruits and vegetables increased by 3.8% from February to March, rice – by 3.2%, potatoes – by 3.2% and minced beef – by 2.1%.

Andrew Hunter, a senior US economist at Capital Economics, said energy prices will fall in the coming months and there are signs that price pressures appear to be easing.

But, he added, the figures are likely to boost the Federal Reserve’s plan to raise interest rates as it struggles to cut inflation.

“As Fed employees sound more and more insistent with each passing day, March figures will not change their plans to increase interest rates to 50 basis points at next month’s meeting. However, this supports our view that after slowing down to realize that the initial jump was not transient, Fed officials are now too pessimistic about how quickly inflation will fall, “he wrote in a note to investors.

The White House warned before the report that it expected a bad set of figures. On Monday, White House spokeswoman Jen Psaki told reporters that a previous report by the Labor Department did not include much of the jump in oil and gas costs caused by the Kremlin’s invasion of Ukraine.

“We expect the leading inflation of the consumer price index in March to be extremely high due to the rise in Putin’s prices,” Psaki said.

There are two versions of the CPI, one that includes all the prices that consumers face, and the other – the main CPI – that excludes food and energy prices, which are usually more volatile. Basic prices rose 6.5% in the year to March, from 6.4% in the year to February.

The main index shows that the inflation rate is slowing down, increasing by 0.3% compared to February, compared to 0.5% the previous month.

Psaki said the administration expects a big discrepancy between the two measures due to rising gas prices. Nationwide, the average price per gallon of gas is now $ 4.11, up from $ 2.86 a year ago, according to the AAA.

“Sometimes gas prices were more than a dollar above pre-invasion levels, so an approximately 25% increase in gas prices will lead to tomorrow’s inflation,” Psaki said.

Joe Biden turned to the latest inflation figures during a speech in Des Moines, Iowa, where he announced plans to use more ethanol in US fuel over the summer in a bid to cope with high gas prices. “I’m doing everything in my power to reduce Putin’s price hikes,” he said.

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