The inflation rate throughout most of the developed world has become so high that central banks have started to ramp up interest rates in an effort to tame rising prices. So far, it has not worked. The consumer price index rose 8.5% in March, compared to the same month a year ago. The pace is at the highest level in nearly four decades and shows no signs of abating.
Most of the rise has been blamed on supply chain congestion. Originally triggered by factory and other production constraints due to the COVID-19 pandemic, the problem worsened as oil rocketed above $100 a barrel, largely caused by the Russian invasion of Ukraine. This, in turn, led to sanctions against Russia, one of the world’s top crude producers and exporters. It’s little wonder that the household item whose price is soaring the highest is fuel oil. (These are the states with the highest gas prices.)
No one should think that oil is the primary culprit. According to The Wall Street Journal, Blerina Uruci, US economist at T. Rowe Price, said: “We’re seeing strong inflation momentum across the board, both for goods and services,”
The Federal Reserve said it would raise rates four times this year, However, some members of the Board have indicated that increases may be more frequent. It is expected that these increases will be a quarter of a percent each time, but some Fed members expect a need for those increases to be half a percent. Many economists believe these higher rates will strangle the economy and drive it into a recession.
Former Treasury Secretary Larry Summers believes it is too late for the Fed to stop an economic downturn. He recently wrote in The Washington Post: “There is a first time for everything, but over the past 75 years, every time inflation has exceeded 4 percent and unemployment has been below 5 percent, the US economy has gone into recession within two years.” Both those factors are part of the economy today.
Some commodities have caused the sharp inflation more than others. About half the jump in March is due to oil prices. The price of fuel oil rose by over 70% last month. The price of most gasoline increased more than 45%. Both new and used car prices rose by double-digit percentages. A similar pace was seen for some meats and fruits.
If oil remains the major component to price increases in the months ahead, and the Russian invasion of Ukraine continues, the chance that inflation will remain high in the United States going forward is high as well. (Luckily, we’re not close to being the country with the highest inflation rate in the world.)
To determine the household items that are soaring in price, 24/7 Wall St. reviewed data on the consumer price index (CPI) for all urban consumers from the Bureau of Labor Statistics. Expenditure categories were ranked based on the percentage change in CPI from March 2021 to March 2022. Data used to calculate percentage change is not seasonally adjusted.
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