8.5 percent inflation: US inflation at highest level since 1981

Status: 04/12/2022 16:26

US consumer prices increased in March at their highest rate in more than 40 years. Oil prices play a big role in this. The US Federal Reserve will respond by raising interest rates.

US inflation accelerated further in March. Consumer prices rose 8.5 percent year over year, according to the Washington Department of Labor. This is the highest rate of inflation since December 1981, in just over 40 years. In February, the rate was 7.9 percent.

Material bottlenecks and rapidly rising energy costs as a result of the Ukraine war are fueling inflation. According to the ministry, the main drivers of prices were fuel, rents and groceries. Gasoline prices alone rose 18.3 percent month-on-month, accounting for more than half the increase. The prices of other energy sources also increased significantly.

Hardly any relaxation expected in the commodity market

Core inflation, which excludes energy and food, rose 6.5 percent year on year. “Whether the inflation rate peaks in March depends mainly on the evolution of oil and gasoline prices,” said Commerzbank economist Christoph Balz. “If the price of oil stays at the current level of around $100 a barrel of Brent and doesn’t go back up, the peak of inflation is probably behind us.” However, efforts by the West to forgo oil imports from Russia mean there is little reason to expect an easing of oil market tension in the coming months.

The US Federal Reserve’s two percent inflation target has been exceeded for some time. The Fed has already announced its determination to significantly tighten monetary policy. In March, it raised the benchmark interest rate by 0.25 percentage points for the first time since 2018.

Interest rate increases of more than two percentage points are expected in financial markets for this year alone. Most of the news agency. Reuters Surveyed economists expect exceptionally strong increases of half a percentage point each in May and June. That would be the steepest interest rate hike since 1994. In addition, the Fed wants to quickly melt its trillion-dollar balance sheet by selling the securities it owns. The next regular meeting of US monetary policy makers will take place on May 3-4.

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