Key inflation indicator jumped 6.1%, more than in 40 years

Key inflation indicator jumped 6.1%, more than in 40 years

A key alternative measure of U.S. inflation hit its highest level in four decades as fears grow that a Russian invasion of Ukraine could lead to a further wide-ranging price spiral.

Federal data released Friday showed that the personal consumption price index (PCE) rose 6.1 percent in January from a year ago, the biggest annual gain since February 1982.

As the Ukrainian crisis shakes global oil markets, more rounds of painful price increases could await Americans.

The national average price of gasoline jumped three cents on Friday alone to $3.572, according to the AAA Gas Price Index, up 25 cents from a month ago and the highest level in eight years.

The Personal Consumption Price Index (PCE) rose 6.1 percent in January from a year earlier, the biggest annual increase since February 1982.

The Personal Consumption Price Index (PCE) rose 6.1 percent in January from a year earlier, the biggest annual increase since February 1982.

The annual increase in the PCE index is observed monthly from July to January.

The annual increase in the PCE index is observed monthly from July to January.

Fed Chairman Jerome Powell will have to make a tough decision about whether to keep raising interest rates to fight inflation.

Fed Chairman Jerome Powell will have to make a tough decision about whether to keep raising interest rates to fight inflation.

Fed Chairman Jerome Powell now faces the tough decision of whether to continue raising interest rates to fight inflation as rumors mount that the US could face a “stagflation” environment if the crisis in Europe slows economic growth.

The so-called core PCE, which excludes food and energy price volatility, rose 5.2% year-over-year in January, the biggest increase since 1983.

The core PCE price index is the Federal Reserve’s preferred measure of inflation because of its flexible 2 percent target and is a complementary measure to the more widely known CPI, which hit a 40-year high of 7.5 percent last month.

High inflation is wiping out wage growth for many Americans and could hinder economic growth.

The situation in Ukraine increases the likelihood of a further decline in inflation, causing a sharp jump in oil prices around the world.

Brent oil prices soared above $100 a barrel on Thursday for the first time since 2014. At the beginning of Friday, they fell to about $98.7 per barrel.

The national average price of gasoline jumped 3 cents to $3.572 on Friday, according to the AAA Gas Price Index.

The national average price of gasoline jumped 3 cents to $3.572 on Friday, according to the AAA Gas Price Index.

Russia is a major exporter (left) of crude oil and accounts for 7% (right) of all US oil imports.

Russia is a major exporter (left) of crude oil and accounts for 7% (right) of all US oil imports.

For every $10 increase in the price of oil, a gallon of gasoline rises in price by about 20 cents.

Higher gas prices have a broad impact on prices, with more than 70 percent of retail goods delivered by trucks.

Oil prices at $100 a barrel would cut GDP growth by 0.1 percentage points in the second quarter and 0.5 percentage points in the third quarter, according to Moody’s Analytics.

The Federal Reserve is expected to begin raising interest rates in March to tame inflation, with economists expecting as many as seven hikes this year.

But now there are fears that an economy hit by high oil prices may not be able to withstand monetary tightening.

“The implications of the current situation in Ukraine for the US medium-term economic outlook will also be factored into determining the appropriate pace” of interest rate hikes, Cleveland Fed President Loretta Mester said Thursday.

Richmond Fed President Thomas Barkin said the case for a U.S. rate hike remains “solid” but also called the invasion a “worrisome” development that will leave policymakers thinking about what could happen.

The PCE is an additional indicator of the more widely known consumer price index (see above), which hit a 40-year high of 7.5% last month.

The PCE is an additional indicator of the more widely known consumer price index (see above), which hit a 40-year high of 7.5% last month.

Higher gas prices have a broad impact on prices, with more than 70 percent of retail goods delivered by trucks.

Higher gas prices have a broad impact on prices, with more than 70 percent of retail goods delivered by trucks.

The risks could be as obvious as high oil prices hurting consumer spending and pushing up inflation even more, or as unknown as how Russia might react to US sanctions.

If Russia, the world’s second-biggest oil exporter, starts holding oil on global markets in response to sanctions, the shockwaves could be huge.

“Underlying demand is strong. The labor market is tight. Inflation is high and expanding,” Barkin said, describing a major case of rate hikes.

“But I will say that it is disturbing to hear the news. As always happens, you need to start and think about where something that you could not initially foresee could go.

The Fed has two main goals: keeping inflation at 2 percent a year and achieving “maximum employment.”

These two mandates often conflict because the Fed is trying to control inflation by raising interest rates and trying to increase employment by cutting interest rates and pumping money into the economy through bond purchases.

The Fed sees a controlled inflation rate as a boon because it encourages spending and business investment rather than cash accumulation.

But runaway inflation can be dangerous, eroding consumer spending power and hitting low-income families and elderly retirees hardest.

Last year, the US central bank cut its overnight benchmark rate to near zero and flooded the economy with money through monthly bond purchases, which it is now cutting.

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