An inflation rate closely monitored by the Federal Reserve jumped 6.4% in February from a year earlier, with sharply higher prices for food, gasoline and other essentials squeezing Americans’ money.
The Commerce Department reported Thursday that the figure is the largest year-on-year increase since January 1982. Excluding volatile prices for food and energy, so-called core inflation rose 5.4% in February from 12 months earlier.
Strong consumer demand has been accompanied by a shortage of many products to jump sharply in four decades. Increasing inflationary pressures, Russia’s aggression in Ukraine has disrupted global oil markets and accelerated the prices of wheat, nickel and other important commodities.
Inflation spikes have affected consumers, whose spending rose only 0.2% in February, down from a much larger 2.7% gain in January. Adjusted for inflation, spending actually fell 0.4% last month.
The Federal Reserve has responded to inflation this month by raising its benchmark short-term interest rate from near zero to a quarter-point, and it could raise it well into next year. Because its rate affects many consumer and business loans, the Fed’s rate hike will make borrowing more expensive and could weaken the economy over time.
Michael Ferrell of JPMorgan is among the economists who now think the Fed will raise its key rate by an aggressive half-point in both May and June. The central bank has not raised its benchmark rate by half a point in two decades, a sign of how concerned it is about the continued rise in inflation.
On a monthly basis, prices rose 0.6% from January to February, slightly higher than the 0.5% increase in the previous month. The base price rose 0.4%, down from a 0.5% increase in January.
Gas prices rose last month after Russia’s invasion, prompting the United Kingdom and the Biden administration to ban Russian oil exports. According to the AAA, the price of a gallon of gas rose to a national average of $ 4.24 per gallon on Wednesday. That’s up 63 cents from a month ago, when it was $ 3.61
Thursday’s report follows the consumer price index, a more widely observed inflation measure, released earlier this month. The CPI rose to 7.9% in February from a year earlier, the sharpest rise in four decades.
Many economists are still hoping that inflation will be at its peak next month. Partly because of the price hikes that took place last year, when the economy is largely restarted, year after year the price increases will start to look smaller. Yet Fed officials project that inflation, measured by its preferred gauge, will still be relatively high at 4.3% by the end of this year.