Soaring Gas Prices Push Inflation to a 40-Year High of 7.9% in February | Economy
Inflation showed no signs of abating in February, with consumer prices rising 0.8% for the month and 7.9% on an annual basis, with gasoline prices accounting for nearly a third of the increase, the Labor Department reported Thursday.
This increase follows an annual increase of 7.5% in January.
Excluding food and energy, the benchmark index rose 0.5%, down from 0.6% in January, and at an annual rate of 6.4%
The Federal Reserve is set to begin a series of interest rate hikes next week to fight inflation, but market rates have already risen ahead of that move. The stock market, meanwhile, entered a period of heightened volatility, with futures on the Dow Jones Industrial Average falling more than 350 points early Thursday after gaining 654 points on Wednesday.
The European Central Bank opted to keep interest rates steady Thursday morning, a move that was expected given the greater effect the war in Ukraine is expected to have on European economies.
The combination of rising prices and interest rates is expected to slow the US economy going forward, with the war in Ukraine and the resulting spike in energy prices further weakening consumer sentiment.
“Consumers are likely to cut back on discretionary spending in the spring and summer as inflation outpaces earnings growth, especially consumers in the lower and middle segments of the income distribution,” Chief Economist Bill Adams wrote on Wednesday. at Comerica Bank.
“Sentiment polls showed that Americans were very unhappy with inflation even before the crisis, even though spending was holding up,” Adams added. “This latest shock is enough to force concrete changes in household budgets.”
The price of oil, in particular, has affected consumers who are seeing daily gasoline prices rise above $4 a gallon. Oil has traded as high as $139 a barrel in recent days, but fell to around $112-116 on Wednesday. The fluctuations are directly linked to developments in Ukraine.
“Rising energy and gas prices act like a tax on consumers,” says Luke Tilley, chief economist at Wilmington Trust. “The median household has already exhausted its stock of (pandemic) savings.”
Economists have already started scaling back their forecasts for economic growth this year, with many slashing their forecasts by half a point.
“We’re already looking at slower growth than last year,” says Alejandra Grindal, chief economist at Ned Davis Research, who now thinks global growth will hit 3.8% this year, down from her forecast of 4.3%. previous ones. “The crisis just adds another layer of risk.”
Separately on Thursday, the number of people filing for first time unemployment benefits rose by 11,000 to 227,000, the Labor Department reported.
The four-week moving average was 231,250, an increase of 500.
The figures suggest there will be no relief for companies struggling to fill some 11million vacancies. Tensions in the labor market have led to wage increases for in-demand workers such as those in manufacturing, logistics and software developers.
“Employers continue to navigate one of the most complicated job markets on record, with strong demand for talent across all sectors and labor shortages putting workers in the driver’s seat like never before,” said Karen Fichuk, CEO of Randstad North America.
“At the same time, workers continue to feel the strain of inflationary pressure and COVID-related challenges. Smart companies need to adjust their talent management strategies to attract quality candidates and retain their current workforce. »