US consumer prices soar in March on back of Russia-Ukraine war

Consumer price index surged 1.2% as cost of petrol rose to record high

The consumer price index surged 1.2 per cent last month as Russia's war against Ukraine pushed the cost of petrol to record highs. AFP
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US monthly consumer prices increased by the most in 16-and-a-half years in March as Russia's war against Ukraine inflated the cost of petrol to record highs, cementing the case for a 50 basis points interest rate rise from the Federal Reserve.

The consumer price index surged 1.2 per cent last month, the biggest monthly gain since September 2005, the Labour Department said on Tuesday. The CPI advanced 0.8 per cent in February.

Tuesday's report is no surprise to the White House, which expected a sharp increase in consumer prices.

President Joe Biden's administration expected inflation to be "extraordinarily elevated due to [Russian President Vladimir] Putin's price hike," White House Press Secretary Jen Psaki told reporters during a Monday briefing.

Petrol prices on average soared to an all-time high of $4.33 per gallon in March, AAA said. While fuel 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. The US has banned imports of Russian oil, liquefied natural gas and coal as part of a range of sanctions against Moscow over its invasion of Ukraine.

In addition to pushing up petrol prices, the Russia-Ukraine war, now in its second month, has led to a global surge in food prices as the countries at war are both major exporters of commodities such as wheat and sunflower oil.

In the 12 months through to March, the CPI accelerated 8.5 per cent. That was the largest year-on-year gain since December 1981 and came after a 7.9 per cent jump in February. It was the sixth straight month of annual CPI readings above 6 per cent.

Economists polled by Reuters had forecast consumer prices advancing 1.2 per cent in March and vaulting 8.4 per cent year-on-year.

The strong inflation readings came after data last month showed the unemployment rate dropping to a two-year low of 3.6 per cent in March.

The US central bank in March raised its policy interest rate by 25 basis points, the first increase in more than three years. Minutes of the policy meeting published last week appeared to set the stage for big rate increases.

High inflation and the Fed's hawkish posture have left the bond market fearing a US recession, though most economists expect the expansion will continue.

Many believe March could mark the peak in the annual CPI rate but warn that inflation could remain well above the Fed's 2 per cent target at least until 2023.

Petrol 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.

Excluding the volatile food and energy components, the CPI rose 0.3 per cent after gaining 0.5 per cent in February. The core CPI increased by 6.5 per cent in the 12 months ending in March, the largest advance since August 1982, after rising 6.4 per cent in February.

Lockdowns in China to contain a resurgence in Covid-19 infections are perhaps putting more strain on global supply chains, which could keep goods prices elevated. Rising rents for housing are also expected to keep core inflation high.

Updated: April 12, 2022, 1:23 PM