U.S. inflation rises to 8.5% in March, the highest in more than 40 years

Driven by energy and food, U.S. consumer prices surged 8.5 percent in March from a year earlier, the biggest gain in more than 40 years. Inflation has not eased, and Federal Reserve officials have more reason to raise interest rates by 2 yards in May, accelerating the pace of monetary policy tightening.

The U.S. Labor Department announced today that the U.S. consumer price index (CPI) rose 8.5 percent in March, the highest level since December 1981. The data was slightly higher than market expectations of 8.4%, surpassing February’s 7.9%, and the sixth consecutive month that inflation was above 6%.

Excluding volatile energy and food prices, core inflation rose 6.5% annually, in line with market expectations. The figure was up from 6.4% in February and the highest since August 1982.

Compared with February, the CPI rose by 1.2%, and the monthly growth rate was higher than the 0.8% in February; the monthly growth rate of core inflation was 0.3%, which was lower than the market expectation of 0.5%.

The main “culprits” behind the surge in U.S. consumer prices are the same as in previous months, still energy and food.

The Russian military invaded Ukraine aggressively on February 24, which stimulated international oil prices to hit a 14-year high in early March. After the United States and other Western countries released oil reserves, gasoline prices in the United States dropped slightly in recent weeks and are still close to record highs. As the impact of COVID-19 (Coronavirus 2019) on the economy diminishes, private demand has picked up, and the prices of food such as meat, eggs, fruits and vegetables have risen steadily, and it is difficult to cool down food inflation.

Gasoline prices rose 18.3 percent in March, accounting for more than half of the overall increase in the CPI, according to the Labor Department. Fueled by gasoline, energy prices rose 11% month-on-month and 32% year-on-year.

Food prices in March rose 1% month-on-month, with an annual growth rate of 8.8%, the highest since May 1981.

In the past two years, the U.S. economy has gradually emerged from the shadow of COVID-19, private consumption has been booming, and the labor market has recovered. However, due to the chaotic global supply chain, inflation remained high after surging a year ago or so, and the Federal Reserve Board (Fed), which regards price stabilization as one of its missions, had to respond cautiously.

To tame inflation, Fed officials decided in mid-March to raise interest rates by 1 yard (0.25 percentage point) to take the benchmark rate away from the levels that have been approaching zero in the wake of the COVID-19 pandemic. According to the futures market, investors generally expect that the Fed officials will announce a 2-yard rate hike after the meeting on May 3-4, and more actively promote the normalization of monetary policy.

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