Prices consumers pay for everyday items rose in March to their highest levels since the early days of the Reagan administration, according to Labor Department data released Tuesday.
The consumer price index, which measures a broad basket of goods and services, jumped 8.5% from a year ago on an unadjusted basis, above even the already elevated Dow Jones estimate of 8.4%.
Excluding food and energy, the so-called core CPI increased by 6.5% on a 12-month basis in line with expectations. However, there was evidence that core inflation appeared to ebb as it rose by only 0.3% for the month, less than the estimate of 0.5%. It again raised hopes that inflation was generally declining and that March could represent the peak.
Markets responded positively to the report as equities rose and government bond yields fell.
“The big news in the March report was that core price pressures finally appear to be easing,” wrote Andrew Hunter, senior U.S. economist at Capital Economics. Hunter said he believes the rise in March will “mark the peak” for inflation as year-on-year comparisons drive numbers down and energy prices fall.
Federal Reserve Governor Lael Brainard said the declining rise in the core CPI is a “welcome” development in efforts to bring inflation down.
“” I want to see if we continue to see moderation in the coming months, “Brainard told the Wall Street Journal.
The data reflected price increases not seen in the US since the stagflation days of the late 1970s and early 80s. March headlines were actually the highest since December 1981. Core inflation was the warmest since August 1982.
Due to the rise in inflation, despite rising 5.6% from a year ago, workers’ wages did not keep pace with the cost of living. The real average hourly wage showed a seasonally adjusted decline of 0.8% for the month, according to a separate report from the Bureau of Labor Statistics.
Wages’ inability to keep pace with costs can increase inflationary pressures.
The Atlanta Federal Reserve’s wage tracking for March indicated increases of another 6%, which is “symptomatic of inflationary pressures continuing to expand,” said Brian Coulton, chief economist at Fitch Ratings. Coulton pointed out that the slowdown in core inflation was largely due to a fall in car prices, while other prices continued to show increases.
Housing costs, which account for about a third of the CPI weighting, rose a further 0.5% per month, making the 12-month increase a dazzling 5%, the highest since May 1991.
To combat inflation, the Fed has begun to raise interest rates and is expected to continue to do so through the rest of the year and into 2023. The last time prices were so high, the Fed raised its benchmark rate to almost 20%, pulling the economy out. into a recession that finally defeated inflation.
Economists generally do not expect a recession this time around, though many on Wall Street are increasing the likelihood of a downturn.
“Overall, this report is encouraging in the margin, although it is too early to be sure that the next few core prints will be so low; much depends on the price of used vehicles, which is very difficult to predict with confidence,” he wrote. Ian Shepherdson, Chief Economist at Pantheon Macroeconomics. “We are sure they will fall, but the rate of decline is what matters.”
Price increases came from many of the usual culprits.
Foods rose 1% for the month and 8.8% during the year as prices of goods such as rice, ground beef, citrus fruits and fresh vegetables all rose by more than 2% in March. Energy prices rose by 11% and 32% respectively, as petrol prices rose 18.3% for the month, amplified by the war in Ukraine and the pressure it exerts on supply.
A sector that has been a major driver of the inflation outbreak slowed in March. Used car and truck prices fell 3.8% for the month, although they have still risen 35.3% over the year. In addition, commodity prices excluding food and energy fell by 0.4 per cent.
However, these decreases were offset by gains in clothing, services excluding energy and medical treatment, each of which increased 0.6% for the month. Transport services also rose 2%, bringing its 12-month gain to 7.7%.
As a sign of economic recovery from a sector hard hit by the Covid pandemic, air fares rose by 10.7% a month, up 23.6% from a year ago.