Inflation Surged to a New 40-Year High of 8.5% in March

What’s the story?

• The Bureau of Labor Statistics reported Tuesday that the all items consumer price index rose by 8.5% in the last 12 months through March ― the highest rate of inflation since a comparable period ending in December 1981 and more than four times the Federal Reserve’s target rate of 2%. 
• March marks the fourth consecutive month with inflation running at 7% or higher during the preceding 12-month period, as inflation continues its rise from 7% in December to 7.5% in January and 7.9% in February.
• Month-to-month consumer prices rose by 1.2% in March on a seasonally adjusted basis. That’s an acceleration from the 0.8% hike measured in February and the 0.6% increase in January.

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 70.1% over the last 12 months (including a 22.3% spike from February).
• Gasoline of all types increased 48% over the last year (19.8% from February).
• Used cars and trucks increased 35.3%.
• Lodging away from home increased 25.1% (up 6.7% from February).
• Propane, kerosene, and firewood increased 24.4%.
• Utility gas service (piped) increased 21.6%.
• Citrus fruits increased 19.5%.
• Beef and veal increased 16%.
• Furniture and bedding increased 15.8%.
• Pork increased 15.3%.
• Chicken increased 13.4%.
• Milk increased 13.3%.
• New vehicles increased 12.5%.
• Lettuce increased 12%.
• Coffee increased 11.2%.
• Electricity increased 11.1%.
• Fish and seafood increased 10.9%.
• Fresh fruits increased 10.2%.
• Tools, hardware, outdoor equipment, and supplies increased 10.8%.
• Cereal and bakery products increased 9.4%.
• Men’s and boys’ apparel increased 7.8%.
• Apples increased 7.2%.
• Women’s and girls’ apparel increased 6.3%. 
• Financial services increased 6.2%.
• Fresh vegetables increased 5.9%.

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)