Inflation in the United States at its highest level since the 1980s – E24

US consumer prices rose 8.5 percent on an annual basis in March.

This is the strongest price increase since December 1981, according to the US Census Bureau.

Inflation was expected at 8.4 percent in advance, according to Bloomberg estimates. The previous month, in February, that number was 7.9 percent.

Energy prices alone are up as much as 32 percent year-on-year — and 11 percent month-on-month.

Core inflation, which ignores volatile food and energy prices, was 6.5 percent annually in March – just below the expected 6.6 percent. It also rose slightly from 6.4 percent in the previous month, the highest level since May 1981.

At the same time, the monthly growth rate slowed somewhat. Core inflation rose 0.3 percent from February to March – the weakest rise since September.

Government interest rates are dropping

After the numbers were released, Wall Street’s central indices turned straight, while interest rates on US government bonds shifted in the opposite direction.

The 10-year interest rate, which had reached a three-year high in the past 24 hours, was at the time of writing 2.7 percent – down from a high of 2.83 percent earlier in the day.

The release comes a day after White House Press Secretary Jen Psaki warned that consumer price inflation in March would be “extraordinarily high” due to the war in Ukraine.

– near the top

The numbers came in largely as expected, with a slight rise in overall inflation and a slight decrease in core inflation. This shows that analysts expected much stronger numbers and revised their estimates upward after lying to the downside for a while. The level is high, and this supports the message conveyed by the Fed that it must quickly normalize and tighten interest rates, says Kerry Amdahl, chief economist at DNB Markets.

Has inflation reached its peak now?

When we arrive a little earlier, we will see fundamental effects that will reduce inflation. I can’t say if it will happen in April, May or June, but I think you can actually get it in April, Amdahl says.

That means if we’re not at the top, we’re close to the top – provided nothing happens in the market that actually makes energy prices go up again.

He notes that the US Federal Reserve has previously indicated larger jumps in interest rates by 0.5 percentage point in the next two meetings.

– and there is always an ongoing debate about whether they want to move forward faster. No less important than today’s numbers. But if we get negative fundamentals in the next inflation rates, that will take some pressure off the central bank, Amdahl says.

War, energy and food

Russia invaded Ukraine in late February, and the following month, the war triggered sharp jumps in global commodity and energy prices.

During the first week of March, oil prices rose – the price of a barrel of North Sea oil and US Light Sweet Crude (WTI) peaked at around $130. Gasoline prices also followed suit.

Russia and Ukraine are among the world’s largest exporters of wheat and corn, and the war has driven up global food prices. In March, the UN Food Index averaged 159.3 points – the highest ever. The index rose by 33.6 percent compared to the same month last year.

This comes as the global economy is on its way out of the Corona crisis, with bottlenecks in value chains.

Inflation ‘too high’

The US Federal Reserve has repeatedly indicated that it will take strong measures in the face of high inflation.

At the previous rate meeting in March, the Fed raised rates for the first time since 2018, signaling six more hikes this year — and three next year. The interest rate is now in the range of 0.25 to 0.50 per cent.

Subsequently, Central Bank Governor Jerome Powell described inflation as “too high”, and opened the door for larger rate increases in upcoming meetings – say by 0.5 percentage point.

High inflation along with expectations of higher interest rates globally were among the main reasons that prompted the Bank of Norway to announce several rate hikes at its previous meeting.