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Red-hot inflation skyrocketed to a fresh four-decade high of 7.9% in February – with consumer pain only expected to get worse in the weeks ahead as the Russia-Ukraine war prompts record prices for gas and other commodities.
The February surge marked the highest annual rate of increase in consumer prices since 1982, according to data released by the Labor Department on Thursday. And the impact to US households will likely increase after President Biden warned Americans would face “costs” after an import ban on Russian oil and natural gas.
On a monthly basis, the Consumer Price Index — a closely tracked inflation gauge that details the costs of goods and services — rose 0.8% from January to February. Inflation increased at a faster rate than economists expected.
Labor Department officials said price increases for gasoline, shelter, and food were the largest contributors to the surge.
The latest Consumer Price Index data does not include the most recent spikes in energy costs following the import ban, which will be reflected in the March report. But the alarming data was released during a week in which the national average price of gas hit a record $4.32 per gallon.
Analysts warn that gas prices, a key inflation driver, could hit $5 or even higher depending on how the market and world leaders react to the Ukraine crisis. West Texas Intermediate crude oil, the US benchmark, was trading at about $112 per barrel on Thursday after hovering near $70 just three months earlier.
The latest inflation report will increase pressure on the Federal Reserve to take actions that will bring down prices. The central bank is expected to hike its benchmark interest rate at a meeting next week for the first time in three years.
The higher consumer prices have effectively erased the pay increases American workers have secured in a tight labor market where unemployment has dropped below 4%.
“Robust pay increases have been no match for the higher costs households are facing on rent, food, electricity, gasoline, and a pervasive list of both goods and services,” Bankrate chief financial analyst Greg McBride said. “The buying power of Americans is being squeezed more and more each day, and you see this reality reflected in the dour consumer sentiment readings.”
The Fed has indicated plans to hike interest rates multiple times throughout the year – though the exact pace and size of the hikes are yet to be determined.
While the Russia-Ukraine war has contributed to inflation, the problem dates back far beyond the conflict. Pandemic-related supply chain disruptions, labor shortages and shipping delays are key factors driving an increase in the price of food and other daily essentials.
Fed Chair Jerome Powell said he would call for a quarter-percentage-point hike when central bank officials meet later this month. He also warned that higher energy costs would place additional “upward pressure” on inflation.
Russia’s invasion of Ukraine has caused further disruption in the global energy market, which was already struggling to keep pace with spiking demand as economies recover from the COVID-19 pandemic. But analysts told The Post this week that President Biden’s crackdown on domestic oil and gas producers during his time in office has made the problem worse.
White House Press Secretary Jen Psaki – who has rejected claims that Biden’s restrictive energy policies are contributing to high gas prices – acknowledged earlier this week that the administration expected the data to show inflation was still running hot.
“We don’t have the data at this point yet. But as we’re looking ahead, we certainly assess that we expect to see high headline inflation in tomorrow’s February inflation data. A key reason, as you touched on, are energy prices,” Psaki said Wednesday.
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