Inflation in the United States accelerated further in March, reaching 8.5% yoy in March, the highest level since 1981, from 7.9% in February (a record since 1982) according to the Consumer Price Index (CPI) that Tuesday by the Labor Department. And the Biden administration has announced measures to counter the effects, particularly on Americans’ purchasing power.
Two main reasons for this set of records: the prices of gasoline that have risen since the outbreak of the war in Ukraine, as well as the prices of housing and food are also contributing to this increase, the Ministry of Labor said.
Note that the month of March is the first to fully integrate the effect of the war in Ukraine, which started in the very last days of February.
The Ukraine-Russia war started by Moscow on February 24 prompted the United States to ban all imports of oil, liquefied natural gas and Russian coal. And it promotes rising prices for many commodities, especially agricultural products, as Russia and Ukraine are two of the top exporters of wheat and sunflower oil, among others.
In detail, the US consumer price index (CPI) rose 1.2% in one month, from 0.8% in February. Half of the inflation is due only to gasoline prices, which are up 18.3% from last month, a factor that comes on top of shortages in goods and labor.
lThe price of a liter of petrol at the pump reached an all-time high in March, according to the AAA Motorists Federation. And while fuels continued to be the main driver of the rise in the CPI, food products and rents also contributed significantly to the rise in the price index.
It’s not over yet, but the Fed hopes to avoid double-digit inflation
If we look at core inflation (also known as the “core CPI”) – excluding energy and food prices to get a fairer picture of longer-term price developments – we see it slowing relative to February, up to 0.3% versus 0.5%.
And because these monthly consumer price figures in the United States are in line with expectations and show that theinflation excluding energy and food, the New York Stock Exchange opened higher Tuesday.
This point, considered reassuring, is favorable for the decline in government bond yields, whose rise has so far been supported by expectations of a rapid rise in Federal Reserve interest rates. The yield on 10-year bonds, which had reached its highest level in more than three years earlier in the day at 2.836%, fell to 2.7289%.
This onset of easing in the bond market is especially beneficial for technology stocks, which are sensitive to changes in interest rates: their S&P index rose 1.07% and of the industry heavyweights, Apple gained 1.08%, Microsoft 1.08 % and Netflix 2.09. †
Minutes into trading, the Dow Jones index gained 252.39 points or 0.74% to 34,560.47, the Standard & Poor’s 500 rose 0.87% to 4,450.70 and of course the Nasdaq Composite, the index of technology stocks, also in play, up 1.2% to 13,573.35.
However, if we look at this Core CPI index one year from now, the picture is very different: there we see inflation accelerating and still reaching 6.5%, the highest level since August 1982.
To note, Used car prices, which have been driving inflation for months, fell in March (-3.8%). This moderation in used car and commercial vehicle prices has driven the increase in theinflation called base.
However, inflation will rise further underlines the Fed, which expects a peak in May, around 9%then a slow recoil, for “still above 5% at the end of the year”but avoid the specter of double-digit inflation.
For two years, inflation has exceeded 2%, the Fed’s target
The White House had led the way on Monday, warned inflation would be “exceedingly high”.
And on Tuesday, it announced a series of initiatives to increase biofuel use and production, in hopes of lowering prices at the pump.
As President Joe Biden, after already announcing historic withdrawals from the United States’ strategic oil reserves, is beginning to lose his power to halt what the White House invariably calls the “Putin effect” on inflation, in a hitherto unsuccessful attempt at political cost to the Democrat.
For example, E15, a fuel containing 15% ethanol, can be sold this summer, while its distribution is normally prohibited during this season. The White House will also allocate funds for infrastructure for biofuel production and to promote aviation biofuel development.
Joe Biden hopes to kill several birds with one stone: lower prices at the pump, make promises about both the environment and energy independence, and score a few points with a rural America it usually doesn’t hold in its heart.
The Fed has started raising interest rates to slow overheating
It has now been a year since inflation, which reduces household purchasing power, surpassed the US central bank’s (Fed) 2% target. The month of March is even the 6th in a row with a price increase of more than 6%.
In mid-March, the institution started raising its key rate to raise the cost of credit and thus curb consumption and investment. She also warned that she would continue to tighten monetary policy in the coming months.
The rates, which used to be between 0 and 0.25%, are now between 0.25 and 0.50%.
But as this is the sixth month in a row with inflation over 6% in Americawould the Federal Reserve increase its rate interesting next month: the markets are already anticipating a half point rise in the rate federal funds (“fed funds”) on May 4, after that of a quarter point decided in March, the first for more than three years.
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NOTE on the indices considered
l’CPI index is the one on which, in particular, pensions are indexed. But the Fed prefers another indicator, thePCE Indexshowing that inflation rose to 6.4% yoy in February.
(with AFP and Reuters)
