Inflation in United States Reaches 40-Year High
Inflation surged nearly 8% on an annual basis in February – the largest increase since 1982 – and is expected to inch higher as a result of the war in Ukraine. The month over month increase was 0.8%.
Major contributors towards the increase include gas (which rose by 6.6%), groceries (which rose by 1.4%), and housing (which rose by 0.5%). The price of fresh fruits and veggies jumped more than 2% in February – the largest monthly increase in a decade. The average cost of housing is up 4.7% over last year, a factor responsible for more than 40% of the overall increase after taking into account food and energy.
Unfortunately for workers, wages are not keeping pace with inflation. According to the Labor Department’s Bureau of Labor Statistics, inflation-adjusted earnings dipped 0.8% last month and have declined by 2.6% over the past year even though headline earnings are up more than 5% compared to last year.
“Inflation is coming in hot but the reality is there are no real surprises in this report,” says E-Trade investor Mike Loewengart. “The market likely already priced the inflation increase in accordingly, and is instead intently focused on Ukraine and the downstream impact from commodities, which are already sending shockwaves through the market.”
Policymakers expected inflation to peak in March before gradually declining as COVID-related supply chain issues are resolved, but that was before Russia invaded Ukraine. Now, experts predict an even higher peak that will take longer to subside. A major concern among economists is that wages (which are being forced up by the lack of available workers) will maintain pressure on inflation as companies continue to increase the price of goods and services to compensate for labor costs.
“We thought that inflation would come down, especially due to the untangling of the global supply chain, but we don’t know how what’s happening in Ukraine will re-tangle that,” warns economist Joel Naroff.
Gas prices have already increased 24% in the last month as a result of Russia’s invasion and are up 53% compared to last year, with the national average reaching $4.31 last week (a record high since 2008). The war in Ukraine is also expected to impact the cost of food production as Russia plays a major role in the fertilizer industry.
“Today’s inflation is even worse when looking at skyrocketing gasoline costs, laments Alfredo Ortiz, head of a pro-business organization called Job Creators Network. “This pain at the pump, which is a result of President Biden’s kowtowing to the ‘regressive’ green agenda from Day 1 of his administration, makes consumers feel even poorer than they are.”
“Prices continue to skyrocket under Biden and Democrats’ reckless policies,” adds RNC Chairwoman Ronna Romney McDaniel. “Biden’s attempt to deflect blame [on Russia] is an insult to every American and small business owner struggling to afford the cost of everyday goods.”
Exacerbating the situation further is an extremely tight labor market. As reported by CNBC, there are roughly 4.8 million more job openings in the US than there are available workers. This lack of workers has made it difficult for small businesses to keep up with the surging demand for goods and services.
The Federal Reserve is expected to begin a planned series of interest rate hikes to combat inflation, with the first raise to be announced this month.
“I do think it’s going to be appropriate for us to proceed along the lines we had in mind before the Ukraine invasion,” said Federal Reserve Chairman Jerome Powell. “In this very sensitive time at the moment, it’s important for us to be careful in the way we conduct policy simply because things are so uncertain and we don’t want to add to that uncertainty.”
Author’s Note: The way things are going, I expect inflation to hit 10% by the end of the year. Biden’s plan to combat inflation by spending more taxpayer dollars doesn’t make sense and I won’t be surprised if he blames everything on Russia.