The Fed’s Inflation Alarms Are Sounding After New Numbers


According to a critical gauge of annual inflation carefully monitored by the Federal Reserve, the Russian war in Ukraine, extensive supply interruptions, robust consumer demand, and labor shortages contributed to quickly rising prices in March.

According to the Bureau of Economic Analysis, the personal consumption expenditures price index, which measures the costs that consumers pay for many different things, core prices – which remove the more volatile measurements of food and energy – rose 5.2 percent through March. This is the Fed’s favored inflation indicator, and it has been above the central bank’s target range of 2% for the 12th month in a row.

It was, however, somewhat lower than February’s reading of 5.3 percent, which was the highest since April 1983.

Core prices increased by 0.3 percent between February and March, matching the level seen in February. This indicates that prices are stabilizing but not declining.

The inflation gauge, which includes food and energy, increased by 6.6 percent in March from the previous year, surpassing last month’s reading of 6.3 percent to become the fastest since 1981. The headline gain increased by 0.9 percent every month.

The increase in inflation was primarily due to rising energy expenses, which increased 33.9 percent year over year, and rising food costs, which increased 9.2 percent.

The PCE report was complemented by data on household expenditure, which revealed that consumers bought at a brisk clip in March, with personal spending up 1.1 percent before inflation and 0.2 percent after price rises.

The data backs up the second gauge of price increases, the consumer price index, which showed inflation increased by 8.5 percent in March from the previous year, a new 40-year record.

Inflation has wreaked havoc on millions of American households, particularly low-income families, undermining wage gains and posing a major electoral problem for President Biden, whose support rating has plummeted with rising costs. It’s also compelled the Federal Reserve to admit that increasing prices aren’t just a blip on the radar, and to take steps to radically normalize policy.

For the first time since March 2020, Fed policymakers raised the benchmark federal funds rate by 25 basis points in March, but they have since signaled that larger, 50-basis-point rate hikes are on the table at upcoming meetings, beginning in May.

During a panel discussion at the International Monetary Fund and World Bank spring meetings this week, Fed Chairman Jerome Powell remarked, “It is reasonable to be moving a little more quickly.” “I also think there’s something to be said for front-loading whatever accommodations one believes are necessary. As a result, it appears that 50-basis points are on the table.”

When policymakers meet on May 3-4, traders are now pricing in a 100 percent possibility of at least a half-point rate hike. It would be the first time the Federal Reserve has hiked the federal funds rate by 50 basis points since 2000.