US consumer price inflation hit a new four-decade high in February, locking in the first rate rise for years next week from the Federal Reserve with at least two more increases to come this year as the country faces even higher levels of cost rises.
Monthly consumer prices rose 7.9% in February from a year earlier and up from the 7.5% annual rate in January.
The reading matched economists’ forecasts but added to fears it will continue to rise in coming months as the impact on commodity prices of the Russian invasion of Ukraine work their way through the economy.
Economists say another rise in the CPI above an annual 8% rate is in the wind for March because of the surge in petrol prices this month to record levels well above $US4.30 a gallon (about $A1.55 a litre, so well under the near $A2 a litre price in some parts of Australia).
The news saw Wall Street fall (though that was also linked to the failure of new talks between Russia and Ukraine), while US bond yields rose with the 10% bond back above 2%.
Gold edged up, back over $US2,000 an ounce and the US dollar was mixed-rising against the euro but down against the Aussie dollar which was around 73.60 US cents.
Oil dipped to a still high $US106a barrel and then eased under that level in Asia on Friday.
Fed Chair Jerome Powell has already said he would back a quarter point rate increase when the central bank meets next week and would be “prepared to move more aggressively” later, if inflation does not ease as fast as expected.
The February reading and rise in oil and petrol prices since the end of last month and Powell’s comments have economists pencilling in a second rise in July or September.
Month-over-month the CPI rose 0.8% a little ahead of the market forecast of 0.7% for the month.
Food prices rose 1% and food at home jumped 1.4%, both the fastest monthly gains since April 2020.
Energy of course was the single biggest driver – up 3.5% for February and accounting for about one-third of the headline gain. Shelter (housing) costs, which account for about a third of the CPI, rose another 0.5% in February, for a 12-month rise of 4.7%, the fastest annual increase since May 1991.
Excluding volatile food and energy prices, core inflation rose 6.4%, in line with estimates and the highest since August 1982. On a monthly basis, core CPI rose 0.5%, also consistent with Wall Street expectations.
But other items such as groceries (up 8.6% at an annual rate), plane tickets (up 12.7% from 2021) rents (up 4.2%) and household appliances (up an annual 11.1%) saw big price increases as well, in part driven by continued supply-chain difficulties, rising wages and, in the case of airline fares, higher fuel prices.
One small bright spot, prices of used and new vehicles, which had risen sharply early in the pandemic, appear to be steadying. New car costs are still up moere than 12% though from a year ago and used cars remain 41% higher as US goods price inflation continue to drive much of the cost pressures.
Workers fell further behind as well because consumer price costs continue to rise much faster than wages.
Real inflation-adjusted average hourly earnings for the month fell 0.8% in February, contributing to a 2.6% decline over the past year, according to the Bureau of Labour Studies even though headline earnings rose 5.1% from a year ago in February (down from 5.8% in January), but were outweighed by the price surge.
