Inflation continued to climb in March, as prices for consumer goods rose by 8.5%, according to the Labor Department — the largest year-on-year increase since February 1981.
The consumer price index (CPI), which measures the cost of various goods and services, increased by 1.2% last month, following a 0.8% increase in February. Gas, food and shelter are the main drivers for rising inflation.
As expected, the price of gas surged with Russia’s invasion of Ukraine, increasing by 18.3% after rising 6.6% in February. This is perhaps not surprising for most drivers, as the price of a gallon of gas spiked to $4.33 in March, nearly double what it cost in January 2021, according to data from AAA.
The cost of shelter is now up 5%, as a housing shortage has driven up prices in both the home property and rental markets.
Food costs keep rising
While the cost of gas and shelter is concerning, prices for basic food items also continue to climb steadily. The food price index climbed by 1% last month, for a total year-over-year increase of 8.8%. In the previous six months, food prices have increased by a monthly average of about 0.8%.
Notably, food prepared at home now costs 10% more than it did a year ago, making it more difficult for consumers to save money by eating out less. In comparison, the year-over-year average cost of takeout and restaurant meals has climbed 6.9%.
This is because the cost for essential food items needed to prepare meals continues to increase due to supply chain issues, disrupted harvests and labor costs. These items have jumped up in price by the following rates in the last year:
- Flour and prepared flour mixes: 14.2%
- Butter and margarine: 14%
- Meat, poultry and fish: 13.8%
- Milk: 13.3%
- Eggs: 11.2%
- Fresh fruits: 10.1%
- Bread: 7.1%
- Fresh vegetables: 5.9%
Grocers have been more aggressive in increasing prices compared to restaurants, says Matt Dmytryszyn, chief investment officer at financial advisory firm Telemus. “Restaurants tend to reset menu prices on a periodic basis and we would expect added price hikes in the near future,” he says.
“Ultimately, we expect pricing to be more balanced between food at home and away from home.”
No one knows for sure when inflation will slow, but one silver lining from Tuesday’s CPI report is that the index for all items less food and energy rose 0.3% in March, following a 0.5% increase the prior month. That means costs for most items is still rising, but perhaps leveling off.
To combat inflation, the Federal Reserve is expected to continue raising interest rates after introducing a 0.25% increase in March — its first since 2018.
By doing so, the central bank increases the cost of borrowing money, which discourages spending, and in turn, tends to decrease inflation.
A more aggressive interest rate increase is possible at the U.S. central bank’s next policy meeting in early May, Federal Reserve Bank of Chicago President Charles Evans said Monday.
A 0.50% rate hike “is obviously worthy of consideration, perhaps it’s highly likely,” Evans said.
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