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Last month, I went to a restaurant in New York. In recent months, the expense of dining out has increased. Credit… The New York Times’ Gabby Jones


The most carefully monitored price index by the Federal Reserve rose 6.6 percent in the year to March, the highest rate of inflation since 1982 and the latest reminder of the excruciatingly quick price hikes hurting consumers and confronting policymakers.

However, a spike in energy prices that coincided with Russia’s invasion of Ukraine, as well as increasing food costs, drove most of the increase in the Personal Consumption Expenditures price index, which was issued Friday. A core index, which excludes volatile food and fuel costs, increased by 5.2 percent in the year to March.

That core metric increased by 0.3 percent on a monthly basis, somewhat slower than the prior month.

Officials from the Federal Reserve and the White House spent most of 2021 expecting that a pandemic-era rise in used vehicle prices and cost hikes in other items would recede as supply chains normalized and high demand subsided. However, despite occasional encouraging indicators like the current monthly fall in the core measure, inflation has been too high for the Fed’s comfort for a year, and the central bank’s tenacity is now prompting a robust reaction.

Interest rates were raised for the first time since 2018 in March, and policymakers have laid the scene for an even higher hike at their meeting next week. As they aim to slow down borrowing, moderate demand, and enable supply to catch up, many Fed officials now anticipate to hike rates back to a neutral level — about 2% — by the end of the year. The idea is to keep inflation from being embedded into consumer and corporate expectations, which may lead to it becoming a more permanent component of the American economy.

The work at hand is challenging. In the past, the Fed has exacerbated recessions by attempting to control rising inflation. Officials are limiting demand at a time when the situation in Ukraine is heightening uncertainty and threatening to keep gas and other commodity prices high, possibly making the central bank’s work even more difficult.

White House officials have been highlighting the war’s role in rising inflation, often blaming Russian President Vladimir V. Putin for increasing costs. While the Russian incursion drove up petrol prices last month, inflation had been high for months before to the fighting.

Some of the growth was aided by government expenditure. Households built significant financial buffers when stimulus cheques and enhanced unemployment benefits arrived in 2020 and 2021, allowing them to keep spending on sofas, cars, and barbecues despite rising expenses. Strong demand for commodities, in particular, coincided with foreign factory closures and congested transportation channels, resulting in shortages and price increases.

However, inflation has now broadened. Employers are paying higher salaries as they struggle to find enough employees to fulfill growing consumer demand. Separate statistics released on Friday indicated that a key indicator of employment expenses that the Fed constantly monitors increased by 1.4 percent in the first quarter of 2022, which was more than anticipated, as private-sector wages and compensation increased by 1.3 percent.

Some firms may increase their prices when labor expenses rise. It may also assist families in maintaining their spending habits.

Consumers continued to purchase at a frenetic rate in March, with personal expenditure up 1.1 percent before inflation and 0.2 percent after correcting for price hikes, according to the data released on Friday. Both of these gains exceeded the median forecast of analysts polled by Bloomberg.

The Fed is attempting to slow the economy down while wage growth and expenditure continue, in order to avoid broad price pressures from developing. While authorities still anticipate price hikes to taper down in the near future, they are no longer counting on it.

“In the case of the United States, we had expected inflation to peak around this time and then drop down,” said Jerome H. Powell, the Fed’s chairman, at a recent event. “In the past, these expectations have been met with disappointment.”

The prospects for price increases in the next months are exceptionally bleak. On the one hand, the Fed’s interest rate reversal has driven mortgage rates considerably higher, potentially weighing down the housing market and cooling associated demand. Consumer demand is already waning for certain firms, such as Whirlpool, compared to last year, albeit it is still high in comparison to pre-pandemic levels.

However, the cost of essential inputs continues to rise, and this is likely to continue as China shuts down important cities to combat the coronavirus and the crisis in Ukraine strains certain supply lines.

Higher input costs are forcing Whirlpool to raise its rates to customers.

In an April 26 conference call, James W. Peters, the company’s chief financial officer, stated, “Historic levels of inflation, particularly in raw materials, energy, and logistics, will hurt us throughout the year.” “However, our previously stated price changes are on track, and we are on schedule to completely offset cost increases as the year comes to a close.”

Before Russia invaded Ukraine and roiled commodities markets, many items were already battling to restore to normal inventory levels. Because to shortages of important components, such as semiconductors, automobiles and trucks were in limited supply. Ford executives stated last week that the business has produced 53,000 cars but were waiting for semiconductors.

“Customer demand is quite robust,” stated Jim Farley, Ford’s chief executive officer, in an earnings conference on April 27. “However, we’re still dealing with supply chain challenges that are preventing us from having an even better quarter.”

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The “economic news today” is a blog that provides updates on the economy, stock market, and business. The blog includes articles about the latest economic news, economic forecasts, and how to invest your money.

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