MARCH 14, 2022 – INFLATION RISES TO A 40-YEAR HIGH IN FEBRUARY
On Thursday, data was released showing inflation in February came in annually at 7.9 percent, the highest since 1982. The consumer price index is rising both on a monthly and annual basis, driven by rising energy costs, food, housing and consumer goods. Labor shortages, supply chain disruptions and a rapid economic recovery post-pandemic have increased prices while the unemployment rate has fallen close to pre-pandemic levels.
The Fed is on track to raise interest rates this week, as inflation is now running at four times their targeted 2 percent. The Fed is confident they can raise rates without a negative impact on the labor market while stemming inflation. The expectation is for a quarter-percent increase, as the Fed has stated they would rather move rates up slowly than start with a half-percent rise immediately. Fed Chair Jerome Powell wants to be careful in the way changes are made in this time of global uncertainty and doesn’t want to exacerbate the situation.
The war in Ukraine is a wild card for policymakers as they try to stem inflation. They were hoping inflation would drop off after the spring when supply chain disruptions started easing. Food, energy and commodity prices have risen since Russia invaded, but a drop in global economic activity as a result of this action could end up easing pressure on prices sooner than expected.