The economy is now expected to grow at a slower pace later this year, in part because inflation causes families and businesses to rethink certain purchases and potentially tap the brakes on spending.
The inflation data, released Tuesday by the Bureau of Labor Statistics, showed prices rose 1.2 percent in March compared with February. Price increases for gas, shelter and food were the largest contributors to inflation, underscoring how inescapable these cost increases have become.
Inflation was relatively steady, even low, for much of the past decade, but picked up significantly as the global economy emerged from the pandemic. A number of economists and policymakers thought inflation would ease this year as supply chain issues cleared up and government stimulus faded. But Russia’s February invasion of Ukraine created a new burst of uncertainty and pushed prices even higher.
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Despite a relatively strong labor market, widespread inflation has made the economy’s performance a huge vulnerability for President Biden and Democrats. The administration has tried to rebrand the recent spike of inflation as a “Putin Price Hike.” But that rhetoric does not seem to have lifted Biden’s approval rating on the economy ahead of the 2022 midterms.
World leaders have responded to Russia’s invasion of Ukraine by trying to economically isolate Moscow, but that has only led to more economic uncertainty.
Russia is one of the world’s largest producers of oil, and its invasion of Ukraine prompted the U.S. government and others to try to restrict Russia’s ability to sell energy. Those moves drove up energy costs; crude oil soared to new highs last month, and rising gasoline prices quickly followed. Russia and Ukraine are also large producers of wheat and other commodities, and prices for those products have also risen.
With gas prices still above $4-per-gallon in much of the country, the White House has tried to craft new policies to help, such as by releasing oil from the Strategic Petroleum Reserve. And the Biden administration on Tuesday announced that the Environmental Protection Agency was going to allow a type of blended gasoline to be sold in the summer to create more supply, though the exact ramifications of this are unclear. Only 2,300 of the nation’s 150,000 gas stations offer the E15 gasoline that would be affected.
Speaking Tuesday at a biofuel company in Menlo, Iowa, Biden said the administration had already made progress in lowering gas prices since March, and said the White House would work harder to bring down costs of food and gasoline, especially in light of Russia’s invasion.
“I’m doing everything within my power by executive orders to bring down the price and address the Putin price,” Biden said. “We’ve already made progress since March inflation data was collected. Your family budget, your ability to fill up your tank — none of it should hinge on whether a dictator declares war, or commits genocide half a world away.”
The administration’s announcement Tuesday was hardly convincing to Republican lawmakers who have long criticized the Fed and the White House for being too slow to combat inflation.
“Inflation just reached 8.5 percent — a new 40-yr high — for the fifth month in a row,” tweeted Sen. Patrick J. Toomey (Pa.), the top Republican on the Senate Banking Committee. “Americans’ paychecks are worth less and less each month. Unfortunately, the administration’s new scheme to address soaring gas prices by forcing more ethanol into the system will likely lead to higher corn, i.e. food, prices. This must be a wake-up call for the White House.”
The March inflation report showed how far energy prices have risen in the past year. Overall, the energy index rose 32 percent in the past 12 months. The gasoline index grew 18.3 percent in March after climbing 6.6 percent in February.
Even as crude prices ease up in recent weeks, sticker shock at the pump continues to sour how many Americans feel about the broader economy.
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The food index rose 1 percent in March compared to February. It is up 8.8 percent compared to the prior 12 months, the largest increase since May 1981. Few categories have been left untouched. Breakfast cereal was up 2.4 percent from February to March. Rice prices rose 3.2 percent, ground beef grew 2.1 percent and eggs were up 1.9 percent. Milk was up 1.3 percent, potatoes 3.2 percent, and canned fruits and vegetables tacked on 3.8 percent.
Rents were up 4.4 percent compared to the year before, and 0.4 percent in March compared to February alone.
In Austin, Iris Poole sticks to her typical grocery run: milk, eggs, butter, canned goods and chicken if it’s on sale. She only buys generic, store-brand items. Two weeks ago, her bill jumped from about $60 to $85. She said she saves money on gas by carpooling with friends, walking to events around town and working from home.
Poole is an operations manager for a streetwear brand, and often hears about the rising cost of living from customers who can’t find room in their budgets for new clothing. Her own spending has had to change, too.
“I have less of a budget now because of what’s been going on in the past two years,” Poole said. “I just want to eat and provide for my needs.”
Catherine D’Amato, president and chief executive officer of the Greater Boston Food Bank, said that in eastern Massachusetts, food insecurity is still 30 percent above pre-pandemic levels. D’Amato said one of the pantry’s partners recently went from seeing 400 households each week to 500.
Such widespread inflation forces families into difficult trade-offs, D’Amato said, as people decide whether to spend money on higher heating costs, higher gasoline costs or higher food costs.
“Every individual has their own rate of inflation,” D’Amato said. “If you have to put gas in your car, or pay for items for your children, or clothing, or your utility bills, or your rent, then you’re going to take away from food money.”
Just a few months ago, officials at the White House and Federal Reserve hoped that inflation was starting to tick down month by month. But those projections were quickly dashed by Russia’s invasion, coronavirus shutdowns at major Chinese manufacturing hubs, and the bleak reality that inflation continues to spread through every crevice of the economy.
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“One cannot escape it, even if one wanted to,” said Joe Brusuelas, chief economist at RSM. “This is going to continue for a while.”
Persistently high inflation comes as economists and analysts increasingly fear a looming economic slowdown. In March, Bank of America analysts lowered their estimates for growth in 2022 from 3.6 percent to 3.3 percent. The Federal Reserve also recently downgraded its gross domestic product forecasts, with officials cautioning that the war in Ukraine is casting uncertainty over the world order.
Fed officials say that the economy is still in a position of strength, given low unemployment and the relative strength of household balance sheets. But as it sets out to rein in inflation, the Fed will strive to cool the economy down without causing it to contract altogether.
But it’s unclear how severe a slowdown could be ahead, or how months of inflation will shave off economic growth.
“Every time inflation is a little higher, I expect … real growth to be somewhat lower,” said Marc Goldwein, senior vice president and senior policy director for the Committee for a Responsible Federal Budget. “We’re getting to the point that inflation is eating output, in some ways.”
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Still, the March inflation report offered some optimism. Prices for used cars and trucks have been a major drag on inflation, as a global semiconductor shortage collides with staggering consumer demand. But in March, the index for used cars and truck fell 3.8 percent, clinching a second-consecutive monthly decline.
Inflation has proved to be one of the most blistering features of the pandemic recovery, one that weighs directly on households across the country. Rents are rising, groceries are more expensive, and wages are being rapidly eroded for families just trying to cover the basics. And households aren’t expecting a quick reprieve. Survey data from the New York Fed showed that in March 2022, U.S. consumers expected 6.6 percent inflation over the next 12 months, up from 6.0 percent in February. That marked the highest reading since the survey began in 2013, and a steep month-to-month jump.
To try to arrest the growth of inflation, the Fed in mid-March launched its first rate hike since the pandemic began and penciled in six more for later this year. In the past few weeks, officials have signaled that even more aggressive hikes could come in the next few months.
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“The expectation going into this year was that we would basically see inflation peaking in the first quarter, then maybe leveling out,” Fed Chair Jerome H. Powell said in March. “That story has already fallen apart. To the extent that it continues to fall apart, my colleagues and I may well reach the conclusion that we’ll need to move more quickly.”
Andrew Van Dam contributed to this report.