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March inflation report: Prices rose sharply amid concerns about economic slowdown – The Washington Post

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The inflation surge in the United States picked up speed in March, as prices rose 8.5 percent compared with a year ago. It was the largest annual increase since December 1981, with energy prices spiking because of Russia’s war in Ukraine.

The White House and Federal Reserve have launched several initiatives to try to corral the rising prices, but higher costs appear to be everywhere, particularly in consumer staples that most families cannot do without. Gasoline, food and a range of other products have become markedly more expensive, creating economic strains for households and businesses, and political problems for the White House and congressional Democrats.

The economy is now expected to grow at a slower pace later this year, in part because inflation causes families and businesses to rethink certain purchases and potentially tap the brakes on spending.

The inflation data, released Tuesday by the Bureau of Labor Statistics, showed prices rose 1.2 percent in March compared with February. Price increases for gas, shelter and food were the largest contributors to inflation, underscoring how inescapable these cost increases have become.

Inflation was relatively steady, even low, for much of the past decade, but picked up significantly as the global economy emerged from the pandemic. A number of economists and policymakers thought inflation would ease this year as supply chain issues cleared up and government stimulus faded. But Russia’s February invasion of Ukraine created a new burst of uncertainty and pushed prices even higher.

Five charts explaining why inflation is at a 40-year high

Despite a relatively strong labor market, widespread inflation has made the economy’s performance a huge vulnerability for President Biden and Democrats. The administration has tried to rebrand the recent spike of inflation as a “Putin Price Hike.” But that rhetoric does not seem to have lifted Biden’s approval rating on the economy ahead of the 2022 midterms.

World leaders have responded to Russia’s invasion of Ukraine by trying to economically isolate Moscow, but that has only led to more economic uncertainty.

Russia is one of the world’s largest producers of oil, and its invasion of Ukraine prompted the U.S. government and others to try to restrict Russia’s ability to sell energy. Those moves drove up energy costs; crude oil soared to new highs last month, and rising gasoline prices quickly followed. Russia and Ukraine are also large producers of wheat and other commodities, and prices for those products have also risen.

With gas prices still above $4-per-gallon in much of the country, the White House has tried to craft new policies to help, such as by releasing oil from the Strategic Petroleum Reserve. And the Biden administration on Tuesday announced that the Environmental Protection Agency was going to allow a type of blended gasoline to be sold in the summer to create more supply, though the exact ramifications of this are unclear. Only 2,300 of the nation’s 150,000 gas stations offer the E15 gasoline that would be affected.

Speaking Tuesday at a biofuel company in Menlo, Iowa, Biden said the administration had already made progress in lowering gas prices since March, and said the White House would work harder to bring down costs of food and gasoline, especially in light of Russia’s invasion.

“I’m doing everything within my power by executive orders to bring down the price and address the Putin price,” Biden said. “We’ve already made progress since March inflation data was collected. Your family budget, your ability to fill up your tank — none of it should hinge on whether a dictator declares war, or commits genocide half a world away.”

The administration’s announcement Tuesday was hardly convincing to Republican lawmakers who have long criticized the Fed and the White House for being too slow to combat inflation.

“Inflation just reached 8.5 percent — a new 40-yr high — for the fifth month in a row,” tweeted Sen. Patrick J. Toomey (Pa.), the top Republican on the Senate Banking Committee. “Americans’ paychecks are worth less and less each month. Unfortunately, the administration’s new scheme to address soaring gas prices by forcing more ethanol into the system will likely lead to higher corn, i.e. food, prices. This must be a wake-up call for the White House.”

The March inflation report showed how far energy prices have risen in the past year. Overall, the energy index rose 32 percent in the past 12 months. The gasoline index grew 18.3 percent in March after climbing 6.6 percent in February.

Even as crude prices ease up in recent weeks, sticker shock at the pump continues to sour how many Americans feel about the broader economy.

Inflation explained: how prices took off

The food index rose 1 percent in March compared to February. It is up 8.8 percent compared to the prior 12 months, the largest increase since May 1981. Few categories have been left untouched. Breakfast cereal was up 2.4 percent from February to March. Rice prices rose 3.2 percent, ground beef grew 2.1 percent and eggs were up 1.9 percent. Milk was up 1.3 percent, potatoes 3.2 percent, and canned fruits and vegetables tacked on 3.8 percent.

Rents were up 4.4 percent compared to the year before, and 0.4 percent in March compared to February alone.

In Austin, Iris Poole sticks to her typical grocery run: milk, eggs, butter, canned goods and chicken if it’s on sale. She only buys generic, store-brand items. Two weeks ago, her bill jumped from about $60 to $85. She said she saves money on gas by carpooling with friends, walking to events around town and working from home.

Poole is an operations manager for a streetwear brand, and often hears about the rising cost of living from customers who can’t find room in their budgets for new clothing. Her own spending has had to change, too.

“I have less of a budget now because of what’s been going on in the past two years,” Poole said. “I just want to eat and provide for my needs.”

Catherine D’Amato, president and chief executive officer of the Greater Boston Food Bank, said that in eastern Massachusetts, food insecurity is still 30 percent above pre-pandemic levels. D’Amato said one of the pantry’s partners recently went from seeing 400 households each week to 500.

Such widespread inflation forces families into difficult trade-offs, D’Amato said, as people decide whether to spend money on higher heating costs, higher gasoline costs or higher food costs.

“Every individual has their own rate of inflation,” D’Amato said. “If you have to put gas in your car, or pay for items for your children, or clothing, or your utility bills, or your rent, then you’re going to take away from food money.”

Just a few months ago, officials at the White House and Federal Reserve hoped that inflation was starting to tick down month by month. But those projections were quickly dashed by Russia’s invasion, coronavirus shutdowns at major Chinese manufacturing hubs, and the bleak reality that inflation continues to spread through every crevice of the economy.

Why gasoline prices remain high even as crude oil prices fall

“One cannot escape it, even if one wanted to,” said Joe Brusuelas, chief economist at RSM. “This is going to continue for a while.”

Persistently high inflation comes as economists and analysts increasingly fear a looming economic slowdown. In March, Bank of America analysts lowered their estimates for growth in 2022 from 3.6 percent to 3.3 percent. The Federal Reserve also recently downgraded its gross domestic product forecasts, with officials cautioning that the war in Ukraine is casting uncertainty over the world order.

Fed officials say that the economy is still in a position of strength, given low unemployment and the relative strength of household balance sheets. But as it sets out to rein in inflation, the Fed will strive to cool the economy down without causing it to contract altogether.

But it’s unclear how severe a slowdown could be ahead, or how months of inflation will shave off economic growth.

“Every time inflation is a little higher, I expect … real growth to be somewhat lower,” said Marc Goldwein, senior vice president and senior policy director for the Committee for a Responsible Federal Budget. “We’re getting to the point that inflation is eating output, in some ways.”

Higher interest rates could blunt two big problems in the economy

Still, the March inflation report offered some optimism. Prices for used cars and trucks have been a major drag on inflation, as a global semiconductor shortage collides with staggering consumer demand. But in March, the index for used cars and truck fell 3.8 percent, clinching a second-consecutive monthly decline.

Inflation has proved to be one of the most blistering features of the pandemic recovery, one that weighs directly on households across the country. Rents are rising, groceries are more expensive, and wages are being rapidly eroded for families just trying to cover the basics. And households aren’t expecting a quick reprieve. Survey data from the New York Fed showed that in March 2022, U.S. consumers expected 6.6 percent inflation over the next 12 months, up from 6.0 percent in February. That marked the highest reading since the survey began in 2013, and a steep month-to-month jump.

To try to arrest the growth of inflation, the Fed in mid-March launched its first rate hike since the pandemic began and penciled in six more for later this year. In the past few weeks, officials have signaled that even more aggressive hikes could come in the next few months.

Five charts explaining why inflation is at a 40-year high

“The expectation going into this year was that we would basically see inflation peaking in the first quarter, then maybe leveling out,” Fed Chair Jerome H. Powell said in March. “That story has already fallen apart. To the extent that it continues to fall apart, my colleagues and I may well reach the conclusion that we’ll need to move more quickly.”

Andrew Van Dam contributed to this report.

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Fed officials signal rates may head to ‘restrictive’ levels to stabilize economy – PBS NewsHour

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WASHINGTON (AP) — Federal Reserve officials agreed when they met earlier this month that they might have to raise interest rates to levels that would weaken the economy as part of their drive to curb inflation, which has reached a four-decade high.

READ MORE: U.S. prices see smallest rise in eight months, spurring hopes that inflation may be peaking

At the same time, many of the policymakers also agreed that after a rapid series of rate increases in the coming months, they could “assess the effects” of their rate hikes and, depending on the economy’s health, adjust their policies.

After their meeting this month, the policymakers raised their benchmark short-term rate by a half-point — double the usual hike. According to minutes from the May 3-4 meeting released Wednesday, most of the officials agreed that half-point hikes also “would likely be appropriate” at their next two meetings, in June and July. Chair Jerome Powell himself had indicated after this month’s meeting that half-point increases would be “on the table” at the next two meetings.

All the officials believed that the Fed should “expeditiously” raise its key rate to a level at which it neither stimulates or restrains growth, which officials have said is about 2.4 percent. Some policymakers have said they will likely reach that point by the end of this year.

The minutes suggest, though, that there may be a sharp debate among policymakers about how quickly to tighten credit after the June and July meetings. The economy has showed more signs of slowing, and stock markets have dropped sharply, since the Fed meeting.

Government reports have shown, for example, that sales of new and existing homes have slowed sharply since the Fed meetings, and there are signs that factory output is growing more slowly. Gennadiy Goldberg, senior rates strategist at TD Securities, suggested that the minutes released Wednesday might reflect a more “hawkish” Fed — that is, more focused on rate hikes to restrain inflation — than may actually be the case now.

Some officials, particularly Raphael Bostic, president of the Federal Reserve Bank of Atlanta, have indicated since this month’s meeting that the Fed could reconsider its pace of rate hikes in September.

At the meeting, Fed officials agreed to raise their benchmark rate to a range of 0.75 percent to 1 percent, their first increase of that size since 2000. The officials also announced that they would start to shrink their huge $9 trillion balance sheet, which has more than doubled since the pandemic.

The balance sheet swelled as the Fed steadily bought about $4.5 trillion in Treasury and mortgage bonds after the pandemic recession struck to try to hold down longer-term rates. On June 1, the Fed plans to let those securities start to mature, without replacing them. That should also heighten the cost of long-term borrowing.

Powell has said the Fed is determined to raise rates high enough to restrain inflation, leading many economists to expect the sharpest pace of rate hikes in three decades this year. Powell says the central bank is aiming for a “soft landing,” in which higher interest rates cool borrowing and spending enough to slow the economy and inflation. But most economists are skeptical that the Fed can achieve such a narrow outcome without causing an economic downturn.

WATCH: Inequality persists as the U.S. economy recovers from the pandemic

Stock prices have plunged on fears that the Fed’s rate hikes will send the economy into recession. The S&P 500 has fallen for seven straight weeks, the longest such stretch since the aftermath of the dot-com bubble in 2001. The stock index nearly fell into bear-market territory last week — defined as a 20 percent drop from its peak — but rallied Wednesday.

The minutes also showed that some policymakers decided it was appropriate to consider selling some of its holdings of mortgage-backed securities, rather than simply letting them mature. Sales would make it easier for the Fed to transition to a portfolio composed mainly of Treasurys, the minutes said. The Fed did not mention any timing of such sales but said they would be “announced well in advance.”

The Fed has said that by September it would allow up to $30 billion of mortgage-backed securities to mature each month, along with $60 billion in Treasurys. Many analysts doubt that the cap will be reached for mortgage-backed bonds, because mortgage rates having jumped more than 2 percentage points since the start of the year. That means that fewer homeowners will refinance their mortgages because their current loan rates are lower than what is now available in the mortgage market.

Fewer refinancings would force the Fed to sell mortgage-backed securities to maintain its plans to reduce its balance sheet.

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P.E.I. business group sets goals to boost economy — but first it needs workers – CBC.ca

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High-speed internet for all communities on P.E.I., increased wages and support for entrepreneurs — particularly women, Indigenous people and newcomers — were part of a new ​​five-year plan announced Wednesday to boost P.E.I.’s economy.

The Partnership for Growth formed in 2019, and over the last few years received input from more than 200 businesses.

The group has created a plan for economic growth that sets specific goals it wants to see met by 2026, such as increasing the Island’s GDP, improving wages and making P.E.I. a bigger player on the global market. 

“It’s now more important than ever to take the long term view, we’re coming out of COVID-19 our focus has been very short term, now we need to look at what are our priorities to make sure that we got back on track,” said Rory Francis, interim chair for Partnership for Growth.

But first, there are short-term issues that need to be addressed, including a shortage of workers in many industries.

Premier Dennis King said it’s important to work with businesses to help attract and maintain those workers.

‘Good blueprint’

“We also have to be a leader in making sure we have the housing for those that we’re going to need to do here, the skills training, there’s just so many components to this where government can be a leader but also a follower, a supporter as well,” he said.

“Government does best when we take our leadership from others and to have a group that has come together like this across so many sectors of the economy I think this gives us a good blueprint for that.” 

The province will continue to focus on immigration and creating business incentives to improve wages, King said.

The partnership has formed a committee that will help businesses figure out how to achieve their goals.

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German economy dodges recession as war, pandemic weigh – Financial Post

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BERLIN — The German economy grew slightly in the first quarter from the previous one, data showed, with higher investments offset by the twin impacts of war in Ukraine and COVID-19 that experts predicted would weigh more heavily in the three months to June.

Europe’s largest economy grew an adjusted 0.2% quarter on quarter and 3.8% on the year, the Federal Statistics Office said on Wednesday. A Reuters poll had forecast 0.2% and 3.7%, respectively.

The reading meant that Germany skirted a recession, often defined as two quarters in a row of quarter-on-quarter contraction, after gross domestic product (GDP) fell by 0.3% at the end of 2021.

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While household and government spending remained mostly at the same level as in the previous quarter and exports were down at the start of the year, investments grew.

Construction investments, boosted by mild weather, were up 4.6% from the previous quarter, despite price increases, and machinery and equipment investments rose 2.5%.

German business morale rose unexpectedly in May as its economy showed resilience, according to an Ifo institute survey published this week that found no observable signs of a recession.

However, there is no upswing in sight either, and Sebastian Dullien, director of the Macroeconomic Policy Institute (IMK), predicted the effect of the war and pandemic-linked restrictions in China – Germany’s biggest trading partner last year, according to official data – would be much greater in the second quarter.

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ING economist Carsten Brzeski said he was sticking with his baseline scenario of a slight GDP contraction in the second quarter after Wednesday’s reading.

“The build-up of inventories and weak consumption in the first quarter, as well as very weak consumer confidence, clearly dampen the optimism that traditional leading indicators are currently conveying,” he said.

A consumer sentiment index by the GfK institute inched up slightly heading into June from an all-time low in May, with household spending burdened by inflation.

The government forecasts economic growth of 2.2% in 2022. (Reporting by Miranda Murray and Rene Wagner; Editing by Paul Carrel and John Stonestreet)

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