In the United States, the price of gasoline in March (+18%) sends inflation to +8.5%: unheard of since 1981

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Inflation accelerated further in March in the United States reaching 8.5% year on year in March, its highest level since 1981, against 7.9% in February (already a record since 1982) according to the index consumer price index (CPI) released Tuesday by the Labor Department. And the Biden administration has announced measures to counter the effects, in particular on the purchasing power of Americans.

Two main reasons for this series of records: the prices of gasoline which have jumped since the outbreak of the war in Ukraine, but the prices of housing and food are also contributing to this increase, said the Labor Department.

Note that the month of March is the first to fully integrate the effect of the war in Ukraine, which began in the very last days of February.

The war between Ukraine and Russia started by Moscow on February 24 led the United States to ban all imports of Russian oil, liquefied natural gas and coal. And it promotes soaring prices for many raw materials, particularly agricultural ones, Russia and Ukraine being two of the main exporters of wheat and sunflower oil, among others.

In detail, over one month, the US consumer price index (CPI) rose by 1.2%, against 0.8% in February. Half of the inflation is due to gasoline prices alone, which soared 18.3% from last month, a factor that comes on top of shortages of goods and labour.

Lhe price of a gallon of gasoline at the pump reached an all-time high in March, according to the AAA Motorists Federation. And while fuels remained the main driver of the rise in the CPI, food products and rents also made significant contributions to the rise in the price index.

It’s not over but the Fed hopes to avoid double-digit inflation

Looking at core inflation (also known as the “core CPI”) – excluding energy and food prices to get a fairer picture of price developments over a longer term -, we see that it is slowing down compared to February, to 0.3% against 0.5%.

And because these monthly consumer price figures in the United States are in line with expectations and show that theinflation excluding energy and food slowed down, the New York Stock Exchange opened higher on Tuesday.

This point, considered reassuring, favors the decline in Treasury bond yields, whose rise was hitherto supported by expectations of a rapid rise in Federal Reserve rates. The yield on ten-year bonds, which earlier in the day had reached its highest level in more than three years at 2.836%, thus fell to 2.7289%.

This beginning of easing on the bond market primarily favors technology stocks, which are sensitive to changes in interest rates: their S&P index rose by 1.07% and among the heavyweights in the sector, Apple took 1, 08%, Microsoft 1.08% and Netflix 2.09%.

A few minutes after the start of trading, the Dow Jones index gained 252.39 points, or 0.74%, to 34,560.47, the Standard & Poor’s 500 rose 0.87% to 4,450.70 and of course, the Nasdaq Composite, the index of technology stocks was also in the game, taking 1.2% to 13,573.35.

However, if we consider this Core CPI index over one year, the picture is quite different: there, we see inflation accelerating and still reaching 6.5%, its highest level since August 1982.

To note, used car prices, which have been driving inflation for months, fell in March (-3.8%). This moderation in the prices of used cars and utility vehicles has slowed the rise ininflation called basic.

However, inflation will increase further underlines the Fed which anticipates a peak in May, around 9%then a slow recoil, for “end the year still above 5%”but avoiding the specter of double-digit inflation.

For two years, inflation has exceeded 2%, the Fed’s target value

The White House had taken the lead on Monday, warning inflation would be “extraordinarily high”.

And on Tuesday, it announced a series of initiatives aimed at increasing the use and production of biofuel, in the hope of lowering prices at the pump.

Because after having already announced historic withdrawals from the United States’ strategic oil reserves, President Joe Biden finds himself running out of leverage to stem what the White House invariably calls the “Putin effect” on inflation, in a so far unsuccessful attempt to mitigate the political cost to the Democrat.

Thus E15, a fuel that incorporates 15% ethanol, can be sold this summer, while its distribution is normally prohibited during this season. The White House will also release funds for biofuel production infrastructure and to encourage the development of biofuel for aviation.

Joe Biden hopes to kill several birds with one stone: lower prices at the pump, give pledges on the environment as well as on energy independence, and score a few points with a rural America which generally does not carry it. in his heart.

The Fed has started raising rates to slow overheating

It has now been a year since inflation, which reduces household purchasing power, has been above the 2% target of the American central bank (Fed). The month of March is even the 6th in a row to record a price increase of more than 6%.

The institution began in mid-March to raise its key rates, to increase the cost of credit and thus slow down consumption and investment. She also warned that she would continue to tighten monetary policy in the coming months.

The rates, which were in the range of 0 to 0.25%, are now between 0.25 and 0.50%.

But because this is the sixth consecutive month of inflation above 6% in the USAthe Federal Reserve could accelerate the raising of its rate of interest next month: the markets are already anticipating a rise of half a point in the rate federal funds (“fed funds”) on May 4, after that of a quarter point decided in March, the first for more than three years.

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NOTE on the indices taken into account

L’CPI index is the one on which pensions are indexed, in particular. But the Fed favors another indicator, thePCE indexwhich shows that inflation rose to 6.4% year on year in February.

(with AFP and Reuters)