Inflation Hits Fastest Pace Since 1981, at 8.5% Through March

Wednesday, April 13, 2022
author picture Emma Richard
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Original content created by news.limited staff

Inflation Hits Fastest Pace Since 1981 at 85 Through March 2021

Inflation is rising at or near its highest level ever. During the Pandemic Recovery‚ the inflation rate has become the public's main concern. Energy prices have risen dramatically‚ and supply chain disruptions were further exacerbated by Russia's devastation of Ukraine. The collapse of the Russian economy in the east has also contributed to the rise in energy prices. These factors are driving inflation‚ but what are the ramifications of the rise?

Inflation is at or near its peak

The biggest risk to inflation is not the continued forces in the goods sector‚ but the large increase in labor demand in the services sector‚ which is not matched by an equivalent increase in supply. This is known as pent-up demand. While these factors could lead to a spike in inflation‚ they are unlikely to happen in the near term. Until that point‚ the CEA will continue to monitor inflation and gauge its trajectory. A survey by the Federal Reserve Bank of New York found that the public's expectation of inflation has risen to 6.6%. A rising inflation expectation becomes a self-fulfilling cycle‚ with workers requesting higher pay to offset higher prices and businesses raising prices to cover higher labor costs. In other words‚ a rising inflation expectation could spark a wage-price spiral‚ similar to what happened during the late 1960s and early 1970s. Prices may be cooling in some sectors and heating up in others. It's impossible to know if the economy is near or beyond its inflation peak‚ as the lags between the appearance of inflation and the actual rate of increase make it difficult to predict. But markets and lawmakers alike are asking the Fed to act in the meantime. Moreover‚ the Federal Reserve is likely to increase interest rates in March‚ signaling the start of a series of steady hikes this year. Inflation is a political sore for both parties‚ since it is not easily understood how the forces that drive the price levels are determined. Republicans blame President Obama for the spike in gasoline prices‚ while Democrats blame Biden for causing it. The Democrats blame Biden for the number‚ pointing out that he is trying to push through a socialist spending package. Despite the political divisions over inflation‚ spending has continued to remain strong. While the inflation rate remains elevated‚ recent months have shown signs of decelerating growth. Although the economy may slow for a few months due to supply issues‚ demand will continue to increase‚ even if the economy is weak. With demand increasing and the economy recovering from the pandemic‚ the rate of inflation should be higher than before the pandemic. However‚ policymakers are not rushing to call inflation a transitional period because there's no logical reason for it to slow down.

It is the public's biggest worry

Inflation‚ the price of goods and services‚ is the public's biggest worry. In a Gallup poll of over 700 adults‚ 59% of those surveyed said they worry a lot about inflation. Second on the list is crime‚ followed by hunger/homelessness and federal spending. Fourth on the list are energy and the environment‚ race relations‚ illegal immigration‚ and drug use. Unemployment is the least-worried issue among all Americans. The rate of inflation rose to 6.5% in February‚ matching expectations for a coronavirus pandemic. Meanwhile‚ the core rate rose to 6.5% from 6.4%‚ a more accurate indicator of inflationary trends. The problem is that most Americans spend a large part of their budgets on food and gasoline‚ and rising prices affect both of them. So‚ a high rate of inflation could cause more stress than it is worth. The heightened fear of inflation has a negative impact on Americans' political views of the economy. It impacts everyday lives and‚ as a result‚ most Americans blame the Biden administration for rising prices. But Biden has shifted gears this week and blamed the Democrats. This is a revealing insight into the public's anxiety about rising prices. If Biden is to succeed in the Senate‚ he must be able to make voters confident in the economy and the Federal Reserve. Despite the underlying economic conditions‚ people have become increasingly concerned about rising prices. In fact‚ less than half of respondents in the Economist/YouGov poll believe the unemployment rate has fallen. Fewer than half believe wages have risen faster than they have in a decade. The number of Americans worried about rising prices is also higher than four months ago. Moreover‚ nearly half of registered voters said they have stopped driving or made other changes in their lifestyles due to high costs. Inflation is the public's biggest concern‚ and it is not the only one. Economists have long debated whether there is a serious risk of inflation in the U.S.‚ but they've generally focused on the Federal Reserve's aggressive measures to increase the money supply and maintain low interest rates. But there are some economists who have warned that investors are overestimating the risks of inflation. One of them‚ Mark Zandi‚ recently told CNBC that inflationary pressures would emerge quickly.

It is driven by gasoline prices

There are many factors that determine gasoline prices‚ but there are two that affect drivers the most: increased oil production and a soaring price. In September‚ Hurricane Harvey destroyed 5% of the nation's oil production. Gasoline prices surged from $2.37 per gallon to $2.68 per gallon in just four weeks‚ as consumers scrambled to find more gas. Refinery closures and wars also impact U.S. drivers. For example‚ in May 2021‚ the Colonial Pipeline was attacked and a major disruption resulted. The resulting disruption to the entire country forced the national average to rise to $2.96. High gasoline prices pushed oil companies to try new methods of fracking shale formations‚ which boosted U.S. energy production. By the end of the year‚ U.S. oil production had risen by 3%. As the Biden administration seeks to make electric vehicles more popular‚ rising gas prices may lead to greater sales of electric vehicles. There are many ways to find the lowest gasoline prices in your neighborhood. AAA also runs a website for gasoline prices‚ and GasBuddy will let you search by city‚ state‚ or ZIP code. Oil prices are closely linked to the price of crude oil‚ which provides 90 percent of the transportation fuel in the U.S. Oil prices rise closely with the price of crude oil‚ which is a globally traded commodity. Because oil is a global commodity‚ the U.S. cannot set its own price for it‚ but it can influence it by increasing domestic production. In the meantime‚ consumers should watch for changes in oil prices and make informed decisions. Historically‚ gasoline prices have been very close to the distribution terminal price‚ which is supplied by the refineries. The higher the prices‚ the less competitive the gas stations become‚ making consumers spend more money on their gasoline. So‚ if gasoline prices rise again‚ consumers may spend more money at a gas station‚ which will boost the economy. It is an unfortunate fact of life. So‚ while the U.S. economy has grown over the last decade‚ the price of gasoline has remained relatively stable for the time being.

It is a reflection of the pandemic recovery

After a devastating Ebola outbreak in August‚ Germany has no plans to reintroduce nationwide lockdowns‚ and has instead increased its virus testing and mandatory quarantine for high-risk countries. The shape of the pandemic recovery will depend in large part on how policymakers respond at national and EU levels. An ambitious response would help to safeguard the integrity of the single market and the viability of the EU project. The COVID-19 pandemic has posed one of the greatest challenges to global health leadership in our generation. Leaders across the health and public health sectors are in desperate need of guidance during the pre-resolution recovery phase of a pandemic. The COVID-19 framework provides this guidance for leaders at all levels. Among other things‚ the framework focuses on key factors from a health‚ security‚ and economic perspective.