Inflation Accelerated to a New 40-Year High of 7.9% in February

What’s the story?

• The Bureau of Labor Statistics reported Thursday that the all items consumer price index rose by 7.9% over the last 12 months through February. That’s the highest rate of inflation since a comparable period ending in February 1982 and nearly four times the Federal Reserve’s target rate of 2%.
• Month-to-month consumer prices rose by 0.8% in February on a seasonally adjusted basis. That’s an acceleration from the 0.6% rate measured in January and the highest monthly increase since a 0.8% was measured in November.
• Given that Russia’s invasion of Ukraine began at the end of February, its impact on inflation data from last month is small.

What goods did prices increase the most for?

• Here’s a rundown of the common items which have seen the largest price increases due to inflation year-over-year (notable monthly changes in parentheses):
• Fuel oil increased 43.6% over the last 12 months (including a 7.7% increase from January).
• Used cars and trucks increased 41.2%.
• Gasoline of all types increased 38% (including a 5.4% increase from January).
• Lodging away from home increased 25.1%.
• Utility gas service (piped) increased 23.8%.
• Propane, kerosene, and firewood increased 19.1%.
• Furniture and bedding increased 17.1%.
• Citrus fruits increased 16.2%.
• Beef and veal increased 16.2%.
• Pork increased 14%.
• Chicken increased 13.2%.
• Infants’ and toddlers’ apparel increased 12.4%.
• New vehicles increased 12.4%.
• Milk increased 11.2%.
• Fresh fruits increased 10.6%.
• Tools, hardware, outdoor equipment, and supplies increased 10.6%.
• Coffee increased 10.5%.
• Fish and seafood increased 10.4%.
• Financial services increased 9.1%.
• Electricity increased 9%.
• Men’s apparel increased 8.6%.
• Frozen fruits and vegetables increased 8.3%.
• Cereals and bakery products increased 7.8%.
• Women’s apparel increased 6%.

What is inflation and how is it measured?

• Inflation is a measure of the decline of purchasing power for a given currency over time, which in the U.S. means that a dollar effectively buys less than it did in prior periods because prices rise.
• The most common way inflation is measured is through the Consumer Price Index for Urban Consumers (CPI-U), which shows changes in prices paid for a “representative basket of goods and services” by an urban consumer group representing about 93% of the U.S. population.
• CPI-U includes food, energy, commodities like cars and clothes, plus services such as rent and healthcare; and the relative importance of each to the overall basket shifts according to its proportion of all spending in a given month. This overall number is known as “headline” CPI, although economists also track a metric called “core” CPI which excludes food and energy because those categories tend to have more volatility.
• The Federal Reserve aims to keep inflation at about 2% as part of its dual mandate of promoting stable prices and full employment, as a modest amount of inflation is viewed as an optimum policy in terms of encouraging consumer spending without penalizing savings and investment. When inflation starts to get out of control, the Fed raises interest rates to encourage more savings and less consumer spending.

— Eric Revell

(Photo Credit: iStock.com / sefa ozel)