RUSSIA’S war against Ukraine boosted the cost of gasoline to record highs, cementing the case for a 50 basis points interest rate hike from the federal reserve next month.
According to the American Automobile Association (AAA), gasoline prices on average soared to an all-time high of $4.33 per gallon in March.
While gasoline was the main driver of inflation last month, food and services such as rental housing also made strong contributions.
Russia is the world’s second-largest crude oil exporter. However, the United States has banned imports of Russian oil, liquefied natural gas and coal as part of a range of sanctions against Moscow for its invasion of Ukraine.
In addition to the Russia-Ukraine war, it has led to a global surge in food prices as Russia and Ukraine are major exporters of commodities like wheat and sunflower oil.
Causing Consumer Price Index (CPI) to increased 1.2% in March, the most in 16 and a half years.
In the 12 months through March, the CPI accelerated 8.5%. That was the largest year-on-year gain since December 1981 and followed a 7.9% jump in February.
It was the sixth straight month of annual CPI readings north of 6%.
High inflation and the Fed’s hawkish posture have left the bond market fearing a U.S. recession, though most economists expect the expansion will continue.
Many believe March could mark the peak in the annual CPI rate, but caution that inflation would remain well above the Fed’s 2% target at least through 2023.
Gasoline prices have retreated from record highs, but still remain above $4 per gallon. Last year’s high inflation readings will also start falling from the CPI calculation.
Lockdowns in China to contain a resurgence in COVID-19 infections are seen putting more strain on global supply chains, which could keep goods prices elevated.
Separately, rising rents for housing are also expected to keep core inflation hot. – Reuters
