(The Hill) – Consumer prices rose at the fastest annual rate in more than 40 years in February, according to Labor Department data released Thursday.
Inflation steamed ahead for yet another month, pushing the cost of living even higher after more than a year of accelerating price growth. While the burst of inflation began with a small group of goods hit by specific supply shortages, rapid price growth has spread to basic necessities such as food, energy and shelter.
Economists were once optimistic price growth would slow in the spring and allow Americans to more fully reap the benefits of a strong economy.
Such predictions have evolved as sanctions imposed on Russia after its invasion of Ukraine harm the international economy and stoke inflation.
Here are five takeaways from the Labor Department’s consumer price index (CPI) report for February.
Monthly inflation rises after three-month plateau
The CPI rose 7.9 percent in the 12 months ending in February, marking the highest annual inflation rate since January 1982. While the yearly inflation rate is eye-popping, the 0.8 percent monthly increase in prices could be greater cause for alarm.
Prices rose by roughly 0.6 percent each month from November through January, which appeared to be a sign that the forces pushing inflation higher could finally be easing. But the acceleration of monthly price growth in February is a troubling sign for the pace of inflation going forward.
“The February inflation report foreshadows what will be a difficult period of price increases in just about all aspects of the American households’ market basket. What makes this worse is that the price shock will be held hostage to external events and policy decisions that have little to do with economic fundamentals,” wrote Joe Brusuelas, chief economist at tax and audit firm RSM, in a Thursday analysis.
Household staples led the inflation spike
When inflation began to rise last spring, higher prices for goods uniquely affected by the pandemic led the way.
Prices for new and used cars spiked as repossessions paused and a global shortage of semiconductors hindered production. The chip shortage also sent prices for key electronics spiraling higher, but had limited impact beyond non-essential goods.
Households are now having a harder time dodging rising costs with prices for food, energy and shelter fueling much of the February increase in inflation.
Prices for food at home, typically purchased at grocery stores, rose 8.6 percent on the year and 1.4 percent in February alone.
“Everything from cereals to proteins have accelerated in price. Meat, fish, poultry and eggs slowed in January only to pick up again in February. Even peanut butter has jumped in price as consumers attempt to substitute away from more expensive sources of proteins,” wrote Diane Swonk, chief economist at Grant Thornton, in a Friday analysis.
Gasoline prices are also up 38 percent annually and 6.6 percent on the month, and piped gas service is 23.8 percent more expensive than the same time last year.
Rent hikes are well underway
Rents have recovered rapidly after plunging in 2020 and have fueled inflation along the way. Rent of shelter rose 4.8 percent annually in February and 0.6 percent last month alone.
Costs for rental housing are likely to increase as the market heats up over the spring and summer.
Higher rents are particularly troublesome for inflation because shelter costs make up roughly one-third of the CPI. Rents also take much longer to fall than food and energy prices, which are usually more volatile, and are often harder for households to navigate.
Some supply lines are recovering
There were few silver linings in the February inflation report.
A monthly decline in used car prices was a welcome reversal after used cars rose 41.2 percent on the year.
Prices for video and audio gear, televisions, medical equipment and furniture also fell in February after supply chain malfunctions led to rapid price increases in 2021.
“Some of the bottlenecks in production caused by the pandemic—such as limitations in the production of key components caused by shutdowns in certain countries—will probably be alleviated in coming months, in part because of improvements in global health conditions and in part because producers have been building work-arounds. These developments will at least diminish further price increases and may lead to price reductions in some cases,” explained Karen Dynan, nonresident senior fellow with the Peterson Institute for International Economics.
War in Ukraine already taking a toll
While the February inflation report captures the economy before Russia launched its invasion of Ukraine, tensions leading up to the war are partly responsible for higher energy costs last month.
Fuel oil prices rose 6.7 percent and gas prices rose 6.6 percent in February alone as crude oil prices spiked ahead of the invasion. President Biden and Democratic lawmakers have dubbed the total increase in energy costs “Putin’s price hike,” pointing to the sharp rise in oil prices triggered by the Russian president’s belligerence.
While prices for gasoline and other goods had been rising long before Russian forces closed in on Ukraine, the conflict is likely to send them even higher. Russia has pledged to retaliate against crushing sanctions imposed by the U.S. and its allies, and the conflict itself is likely to shake the global supply of energy, wheat, and fertilizer.
“It would be wrong to call today’s February CPI report the calm before the storm,” wrote Ian Shepherdson, chief economist at Pantheon Economics.
“But March will be much worse, because it will reflect the full hit from the surge in gas prices triggered by the war in Ukraine.”