U.S. inflation surges to a 4-decade high
Consumer prices in the United States continued to rise in February and March of 2022 after inflation had hit a 40-year high in January. The Consumer Price Index for All Urban Consumers (CPI-U) was up 8.5% compared to a year ago, while the core index excluding more volatile food and energy prices increased 6.5% over the last 12 months. The March reading was the highest since December 1981, fuelling fears that inflation is out of control.
When inflation spiked in the spring/early summer of 2021, it was largely due to the so-called base effect, reversing the pandemic’s cooling effect on consumer prices a year earlier. At the onset of the pandemic, prices had taken a dive due to a sudden drop in consumer spending and fuel demand before slowly climbing back to their pre-pandemic trajectory over the summer and fall. Due to that initial dip in consumer prices, year-over-year comparisons were always going to be exaggerated for a while, but that is no longer the case.
Back in April 2021, the Federal Open Market Committee said that it was going to aim for “inflation moderately above 2% for some time” before raising interest rates to achieve a longterm average of 2% inflation. And while it remained unclear how the committee defines “moderately above” and “for some time”, it’s increasingly clear that the 2-percent goal is in danger. until it took off last summer. In March, the three-year average inflation rate climbed to 4.2%, clearly indicating that the latest spike in consumer prices is more than just a statistical blip and should be taken seriously. (Statista)