Inflation Surged 2.6% On A Yearly Basis In March—Here’s Why


Consumer prices—everything from cars to groceries to clothes and houses—rose 2.6% over the 12 months ending in March 2021, according to data released Tuesday by the Labor Department, in line with what experts’ expectations of a short-term bounce in inflation as the economy begins to recover from the slowdown caused by the coronavirus pandemic.

Key Facts

Prices rose 0.6% from February—their largest jump since August 2012—and the core price index, which excludes volatile energy and food prices, rose 1.6% over the last year.

Tuesday’s data comes amid heated debate in Washington about whether President Biden’s ambitious fiscal spending agenda—when combined with an upcoming boom in consumer spending—will overheat the economy and push prices to unsustainable levels. 

Some of the spike in prices last month is attributable to something called the “base effect”—the fact that prices were so much lower than usual during the onset of the pandemic last spring means that yearly measures of price movement this year are distorted.

Federal Reserve chair Jerome Powell has repeatedly said that the central bank is anticipating a short-term spike in prices as the economy recovers and that the Fed has the tools to deal with runaway inflation should it become a problem.

Crucial Quote

“We don’t see runaway inflation as an imminent risk—actual inflation is nowhere near what markets are pricing in, and even with a near-term price lift, it won’t be enough to signal runaway inflation,” analysts from S&P Global wrote in a Monday research note. 

Key Background

On Monday, two White House economists explained why they expect a manageable uptick in inflation in the short term—a view shared by other Biden officials at the Federal Reserve and Treasury Department. First, they cite the base effect. Second, they note that ongoing supply chain disruptions could cause manufacturers to temporarily raise prices to make up for materials that are temporarily more expensive. Last, they say that pent-up demand caused by months of lockdowns and restrictions may prompt some businesses—especially those in the service sector—to raise prices to take advantage of that extra demand. The economists emphasized that these effects will be short-lived and said they are confident inflation will fall back to normal levels over time. 

Further Reading

Here’s Why The White House Isn’t Worried About Inflation (Forbes)

Federal Reserve Looking Ahead To Higher Inflation As Economy Rebounds, But It Won’t Raise Rates Yet (Forbes)

Inflation—Not Covid-19—Is Now The Biggest Risk To Markets, Bank Of America Survey Shows (Forbes)

Biden’s Infrastructure Plan May Slow Economy Down, Moody’s Says—But Not For Long (Forbes)

Source link

Related Articles

[td_block_social_counter facebook="tagdiv" twitter="tagdivofficial" youtube="tagdiv" style="style8 td-social-boxed td-social-font-icons" tdc_css="eyJhbGwiOnsibWFyZ2luLWJvdHRvbSI6IjM4IiwiZGlzcGxheSI6IiJ9LCJwb3J0cmFpdCI6eyJtYXJnaW4tYm90dG9tIjoiMzAiLCJkaXNwbGF5IjoiIn0sInBvcnRyYWl0X21heF93aWR0aCI6MTAxOCwicG9ydHJhaXRfbWluX3dpZHRoIjo3Njh9" custom_title="Stay Connected" block_template_id="td_block_template_8" f_header_font_family="712" f_header_font_transform="uppercase" f_header_font_weight="500" f_header_font_size="17" border_color="#dd3333"]

Latest Articles