In February, the core inflation rate, which strips the volatile food and energy sectors, climbed to 6.4 percent, according to the Bureau of Labor Statistics (BLS). This also met economists’ expectations.
Both inflation measurements were up by 0.4 percentage points from January. The consumer price index (CPI) rose by 0.8 percent, month-over-month, while the core CPI eased to 0.5 percent. Like the January report, the latest 40-year-high inflation numbers were broad-based, with nearly everything up across the board.
Many financial experts weren’t surprised by the figures.
“There is little surprise about the rising inflation. For over the past year, we have seen rising costs, some thought it was transitory due to COVID and others a more systemic issue. We are now seeing the compounding effect of the quickly increasing energy costs, and this will continue to increase the cost of goods,” Marc Scudillo, managing officer of EisnerAmper Wealth Management and Corporate Benefits, told The Epoch Times.
Rising Food Prices
The food index advanced by 7.9 percent, with food at home soaring by 8.6 percent and food away from home climbing by 6.8 percent.
Beef and veal picked up by 16.2 percent, pork increased by 14 percent, ham jumped by 7.1 percent, chicken rose by 13.2 percent, and fish and seafood increased by 10.4 percent.
Eggs swelled by 11.4 percent, while milk advanced by 11.2 percent. Fruits and vegetables surged by 7.6 percent, including a 7.8 percent boost to apples, a 16.2 percent push in citrus fruits, and a 7.9 percent increase in the cost of lettuce.
Coffee prices experienced additional pressure, rising by 10.5 percent. Roasted coffee jumped by 10.9 percent, while instant coffee edged up by 8 percent.
Among other common food items, margarine prices rose by 11.4 percent, sauces and gravies jumped by 5.2 percent, salad dressing advanced by 9.4 percent, and peanut butter soared by 15.6 percent.
Nothing listed in the BLS data recorded a year-over-year decline in prices.
Food inflation pressures are expected to intensify in the coming months, driven by the Ukraine–Russia military conflict and its effect on global trade flows, higher energy and fertilizer prices, and output and inventories failing to meet demand.
“The impact of higher prices will mainly be felt by companies in the feed industry, the baking industry, brewers, and producers of vegetable oils and spreads due to their heavy reliance on grains and oilseeds,” Thijs Geijer, a senior economist of food and agricultural sectors at ING, wrote in a recent note.
“Passing on costs will be necessary given the narrow margins in the sector, but it can be difficult nevertheless because food companies already had such conversations with their customers over the last couple of months. In some cases, companies will look to possibly reformulate products by substituting sunflower oil with palm oil to be able to keep up production, for example.”
Pain at the Pump
The energy index intensified 25.6 percent, driven by a 43.6 percent increase in fuel oil and a 38 percent increase in gasoline.
Electricity costs rose by 9 percent, while utility piped gas service surged by 23.8 percent.
Gasoline prices have been dramatically rising in recent weeks, climbing to a national average of $4.318 per gallon, according to the American Automobile Association. This is up from $2.815 at the same time in 2021. Energy analysts say higher gas prices could be here to stay for longer than many had anticipated.
In response to the situation, where some places are witnessing a gallon of gas selling for more than $5, there’s a proposal being discussed in economic circles to offer motorists gas vouchers.
“If I were Dem leadership in the House, I’d bring forward a bill to give $50 [billion] gas price relief to low-income households and defy Republicans to vote against it,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote on Twitter on March 8.
Stuart Hoffman, a senior economic adviser at PNC, described the concept as a “great idea,” writing on Twitter that it would be “worth every penny to protect our freedom and our economy.”
What Else Is Up and Down in the US Marketplace?
Elsewhere in the U.S. marketplace, new vehicles increased by 12.4 percent, while used cars and trucks spiked by 41.2 percent. Apparel rose by 6.6 percent, medical care increased by 2.5 percent, and shelter increased by 4.7 percent. Transportation services jumped by 6.6 percent, while medical care services climbed by 2.4 percent.
Most other household items were more expensive in February on an annualized basis.
Furniture and bedding rose by 17.1 percent, laundry equipment increased by 11.5 percent, cleaning products rose by 5.8 percent, and tools and hardware supplies grew by 8.7 percent.
Men’s apparel increased by 8.6 percent, boys’ apparel surged by 9.1 percent, women’s apparel edged up by 6 percent, and girls’ apparel was flat. Footwear advanced by 7 percent.
Many other services cost more in February, including legal services by 4.9 percent, funeral expenses by 2 percent, financial services by 9.1 percent, internet services by 2.8 percent, pet services by 6.5 percent, and personal care services by 5.6 percent.
Some of the products and services to record a drop were cosmetics by -0.9 percent, smartphones by -13.2 percent, computer software by -2.2 percent, and wireless telephone services by -0.4 percent.
Over the past month, economists have revised their inflation forecasts for the rest of 2022.
In a recent CNBC Rapid Update of 14 analysts, inflation is now forecast to clock in at 6.7 percent in the first quarter, 5.3 percent in the second quarter, 3.9 percent in the third quarter, and 3 percent in the fourth quarter.
Since these numbers were forecast before Russia’s invasion of Ukraine, the March inflation reading could top 8 percent, market analysts say.
Now that the February inflation report is out of the way, global financial markets and market analysts will be bracing for next week’s Federal Open Market Committee (FOMC) policy meeting.
The Federal Reserve is widely expected to raise its benchmark interest rate by 25 basis points, choosing to maintain a more cautious approach to tightening monetary policy, despite rampant price inflation.
“A further uptick in U.S. inflation data could still revive the Fed hawks, but there is little room to play for the Fed hawks,” said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank. “Still, we saw an alarming flattening in the U.S. yield curve lately, where the spread between the two and the 10-year yields flattened, hinting that the Fed will still choose to fight inflation even with a slower growth in perspective.”
Although the military conflict in Eastern Europe is dominating headlines, inflation is “the biggest worry that investors are facing,” according to Naeem Aslam, a market analyst at AvaTrade.
“Moving onwards, the rise in inflation seems to be the biggest worry that investors are facing, while the outlook for growth is turning negative by the day,” Aslam wrote in a note. “This is why, even when the stock prices of companies decline, stock traders seem to no longer be interested in purchasing the dip.”
Current market conditions, from rising inflation to quantitative tightening, could weigh on economic growth over the next year, economists say.
According to the Federal Reserve Bank of Philadelphia, the median gross domestic product (GDP) forecast for the January-to-March period is 1.8 percent, down from the previous estimate of 3.9 percent. The Atlanta Fed Bank GDPNow model estimates first-quarter growth of 0.5 percent, slightly up from the 0 percent figure in the previous update.
JPMorgan Chase analysts recently identified that the fallout from geopolitical tensions, growing inflation, and the removal of policy support “could provide a challenge” to the present landscape.
Is a Recession in the Works?
Analysts have been debating if the Fed’s decision to raise interest rates in 2022 and wind down its $9 trillion balance sheet will erase post-crisis growth prospects.
The market is beginning to price in interest rate cuts in the second half of 2023, anticipating little to no growth in the June-to-December span. Either way, inflation is projected to linger while rates will be higher than at the start of the COVID-19 pandemic.
“History suggests that inflation will be with us for a while and interest rates will continue to rise, perhaps causing a recession. We have seen this movie before,” Peter Tanous, the founder and Chairman of Lynx Investment Advisory, told The Epoch Times.