Inflation hit 8.5 percent in the United States last month, the fastest 12-month pace since 1981, as a surge in gasoline prices tied to Russia’s invasion of Ukraine added to sharp increases coming from the collision of strong demand and stubborn pandemic-related supply shortages.
Fuel prices jumped to record levels across much of the nation and grocery costs soared, the Labor Department said Tuesday in its monthly report on the Consumer Price Index. The price pressures have been painful for American households, especially those that have lower incomes and devote a big share of their budgets to necessities.
But the news was not uniformly bad: A measure that strips out volatile food and fuel prices decelerated slightly from February as used car prices swooned. Economists and policymakers took that as a sign that inflation in goods might be starting to cool off after climbing at a breakneck pace for much of the past year.
In fact, several economists said March may be a high-water mark for overall inflation. Price increases could begin abating in the coming months in part because gasoline prices have declined somewhat — the national average for a gallon was $4.10 on Tuesday, according to AAA, down from a $4.33 peak in March. Some researchers also expect consumers to stop buying so many goods, whether furniture or outdoor equipment, which could begin to take pressure off overtaxed supply chains.
“These numbers are likely to represent something of a peak,” said Gregory Daco, the chief economist at Ernst & Young’s strategy consultancy, EY-Parthenon. Still, he said, it will be crucial to watch whether price increases excluding food and fuel — so-called core prices — slow down in the months ahead.
A letup would be welcome news for the White House, because inflation has become a major liability for Democrats as midterm elections approach in November. Public confidence in the economy has fallen sharply, and as rapid price increases undermine support for President Biden and his party, they could imperil their control of Congress.
While inflation is up across much of the world as economies adjust to the pandemic and share supply-chain problems, core prices have risen more sharply in the United States than in places like Europe and Japan.
That has handed Republicans a talking point, especially as prices overwhelm recent wage growth. Average hourly earnings were up 5.6 percent in March, according to the Labor Department. But adjusted for inflation, average pay was down 2.7 percent.
“Americans’ paychecks are worth less and less each month,” Senator Patrick J. Toomey, Republican of Pennsylvania, wrote on Twitter after the report.
Understand Inflation in the U.S.
While the Federal Reserve has primary responsibility for controlling inflation, the administration has taken steps to combat price increases. Mr. Biden announced on Tuesday that a summertime ban on sales of higher-ethanol gasoline blends would be suspended this year, a move that White House officials said was aimed at lowering gas prices.
The action followed the president’s decision last month to release one million barrels of oil a day from the U.S. Strategic Petroleum Reserve over the next six months.
“I’m doing everything within my powers, by executive order, to bring down the prices and address the Putin price hike,” Mr. Biden said in Iowa on Tuesday afternoon, referring to President Vladimir V. Putin of Russia. Inflation had risen sharply before the war in Ukraine, though the conflict has added to the pressure on energy and commodity prices.
There are a few hopeful signs that inflation could slow in the months ahead.
The first is largely mechanical. Prices began to pop last spring, which means changes will be measured against a higher year-ago number in the months ahead.
More fundamentally, March’s data showed that prices for some goods, including used cars and apparel, moderated or even fell — though the signal was somewhat inconsistent, with furniture prices rising sharply. If rapid inflation in prices for goods does wane, it could help overall inflation subside.
“It’s very welcome to see the moderation in this category,” said Lael Brainard, a Fed governor and Mr. Biden’s nominee to be the central bank’s next vice chair, in an online appearance hosted by The Wall Street Journal. “I’ll be looking to see whether we continue to see moderation in the months ahead.”
Between the slowdown in gasoline prices this month and a potential easing of goods prices, even economists who have long expressed concern about inflation said it might begin to ease.
“It’s better-than-even odds that we’re not going to see a number above 8.5 percent this year,” said Jason Furman, a Harvard economist who served as chair of President Barack Obama’s Council of Economic Advisers.
But even if inflation slows slightly, it is likely to spend 2022 running far above the Fed’s goal, which it defines as 2 percent on average using a related but more delayed price index.
The critical question is how much and how quickly prices will come down, and recent developments ramp up the risks that uncomfortably rapid inflation could linger.
Services costs, including rent and other housing expenses, are increasing more rapidly. Those measures move slowly, and are likely to be a major factor determining the course of inflation.
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
Wages are up sharply, pushing costs up for employers and potentially prompting them to lift prices. Businesses may feel that they have the power to pass rising costs along to customers, and even to expand their profits, because consumers have continued to spend during a full year of rapid price increases.
And cheaper goods are not guaranteed. A coronavirus outbreak is shuttering cities and disrupting production in China, and the war in Ukraine adds a huge dose of uncertainty about commodity prices and supply chains.
“The impact from these commodity price shocks, they can take a while to make it through the economy,” said Tim Mahedy, senior economist at the tax and advisory firm KPMG U.S.
After a long stretch of rapid inflation, America’s central bank is reacting, rather than waiting to see what happens next. Fed officials began raising interest rates last month and have signaled that they will continue to push them up “expeditiously” as they try to rein in lending, spending and demand, hoping to prevent steep price increases from becoming a more permanent feature of the U.S. economy.
“It’s been a shock: We went for a decade in which we could not get inflation to 2 percent,” Christopher J. Waller, a Fed governor, said during an event on Monday. “We’re hoping that it will go away relatively fast, that’s our job, and we’re going to get it done.”
Policymakers are expected to make a half-point interest rate increase at their meeting in early May, and have indicated that they will soon begin to quickly shrink their bond holdings, a change that should reinforce higher rates and soften demand. Ms. Brainard suggested on Tuesday that such a plan could be announced as soon as May, and go into effect as soon as June.
While she predicted that consumer demand would ease in the coming months as the government provided less financial help to households than in 2021 and as borrowing costs climbed, Ms. Brainard cited the war in Ukraine and Chinese lockdowns as risks that could curtail supply and keep inflation elevated.
In a recent Bloomberg survey of economists, the median inflation forecast for the final three months of this year was 5.4 percent over the prior year — well above the Fed’s goal. Businesses and consumers regularly say rapid inflation is disrupting their economic lives, and many are voicing concerns that it will not quickly evaporate.
“Even if the economy slows down, it’s not going to feel like it’s slowed down to the builders, to people that have building products companies, to the trucking companies,” said Crissy Wieck, chief sales officer at the trucking company Western Express, during a Fed-hosted panel on Monday.
She noted that truckers typically buy trucks when shipping demand is as hot as it is now, lured by the promise of high pay — but because of a truck shortage, that additional capacity could be years away.
“That supply chain and supply-demand ratio isn’t going to correct,” she said.
Ben Casselman and Ana Swanson contributed reporting.