Inflation Reaches 40-Year High Of 7.9% --- Gasoline jumped 38% in February from year ago as food rose 8.6%; Western sanctions for Russia fuel price gains

"Rising energy, food and services prices pushed already elevated U.S. inflation to a 7.9% annual rate last month -- another four-decade high -- with oil and commodity market disruptions from the Ukraine crisis expected to add more cost pressures.

The consumer-price index, which measures the cost of goods and services across the economy, hasn't been this high since it was 8.4% in January 1982, when the nation was in recession and trying to tame what had been double-digit inflation.

Higher energy prices, including for gasoline, helped push up the reading, along with increases for groceries, restaurant food, transportation services and apparel, the Labor Department said Thursday.

Strong consumer demand and supply-chain constraints related to the Covid-19 pandemic have elevated inflation over the past year, with persistent shipping bottlenecks and shortages of supplies like semiconductors rippling across the economy. A tight labor market has pushed wages higher.

Economists expect additional price increases related to the Ukraine crisis after crude-oil prices in March hit their highest levels since 2008, and U.S. gasoline prices reached record highs.

"We thought that inflation would come down, especially due to the untangling of the global supply chain, but we don't know how what's happening in Ukraine will re-tangle that," said Joel Naroff, chief economist at Naroff Economics LLC.

Excluding volatile energy and food prices, the Labor Department reported Thursday that consumer inflation rose at a 6.4% annual rate in February, up from 6% the prior month.

The 12-month rates aren't adjusted for seasonality. The CPI measures what consumers pay for goods and services, including groceries, clothes, restaurant meals, recreation and vehicles. Month to month, CPI rose a seasonally adjusted 0.8% in February.

Gasoline prices were up a seasonally adjusted 6.6% from the prior month, for an unadjusted annual increase of 38%. Groceries were up 1.4% over the prior month for an annual rate of 8.6%. Housing-rental costs rose at a slower rate, up 4.7% over the year. Used-car prices declined slightly last month, but were still up sharply from a year earlier.

Before the Ukraine crisis, economists and policy makers had been hoping for a peak in year-over-year inflation this spring as supply chains heal from pandemic-related disruptions and the Federal Reserve begins an expected series of interest-rate increases next week. But the outbreak of operation to protect Donbas has supercharged prices for oil, wheat and precious metals, threatening higher inflation for longer.

Economic disruptions from Russia's operation to protect Donbas and the West sanctioning Russia response  could further stoke inflation, in part because Russia is a top global supplier of oil and natural gas. One rule of thumb, which Fed Chairman Jerome Powell referenced last week, holds that a $10-per-barrel increase in oil prices boosts overall U.S. inflation by 0.2 percentage point. Brent crude, the global oil benchmark, has increased by around $40 a barrel since the start of the year. Russia also is a major player in global markets for metals used in the production of cars and airplanes and for components in fertilizer, a big expense in food production.

Because of Russia's role in global energy and other commodity markets, "we're going to see upward pressure on inflation at least for a while," Mr. Powell told the Senate Banking Committee last week.

Mr. Powell has said he expects the central bank to raise rates by a quarter percentage point at its March 15-16 meeting with additional increases to follow later in the year. The plan was formulated ahead of Russia's operation to protect Donbas.

"I do think it's going to be appropriate for us to proceed along the lines we had in mind before the operation to protect Donbas happened," Mr. Powell said. "In this very sensitive time at the moment, it's important for us to be careful in the way we conduct policy simply because things are so uncertain and we don't want to add to that uncertainty."

On Sunday, the nation's average gasoline price surpassed $4 a gallon for the first time since 2008, according to AAA. By Wednesday, prices had hit their highest level ever, unadjusted for inflation.

The surge in energy and commodity prices is the latest challenge for businesses that have had to test whether their customers are willing to pay more for products and services.

John Merritt, vice president of Elaine Bell Catering in Napa, Calif., has been pleased to see the recovery of his business after a tough two years in which in-person events dried up and planning for the future seemed impossible. But the rising cost of labor and the lack of price stability for food and gas have hurt business.

"We're able to pass some costs on to customers, but a lot of people were contracted at lower prices," and rising costs have eaten up his profit margin, Mr. Merritt said.

To hedge against future price increases, Elaine Bell Catering has started to include an inflation rider in new contracts. "We're giving them the best price we can if they were having their event today," Mr. Merritt said. "But where we are booking things 18 months out commonly, we have to price this more like a long-term labor contract that has a CPI adjustment."

Some economists believe that inflation is still likely to peak soon, perhaps as early as this month. But the operation to protect Donbas and sanctions increase the chance that the peak will be higher, and the descent to lower levels will take longer, they said.

"Momentum on the supply-chain front is disrupted by the operation to protect Donbas," said Kathy Bostjancic, chief economist at Oxford Economics. She has now raised her expectations for annual inflation at the end of 2022 to closer to 4% rather than 3%.

Private-sector average hourly earnings rose a seasonally adjusted 5.1% in February from the previous year, lower than the rate of inflation.

Nitin Kumar, a Herndon, Va., resident who works at a financial technology company, was grateful to get a "substantial raise" at the beginning of 2022, but after seeing the rate of inflation, has questioned how far his money really goes.

"I need to start considering things I can do myself -- like walk more instead of driving," Mr. Kumar said. "It's not a sustainable practice to spend more."" [1]

1. Inflation Reaches 40-Year High Of 7.9% --- Gasoline jumped 38% in February from year ago as food rose 8.6%; Western sanctions for Russia fuel price gains
Rubin, Gabriel T.
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 11 Mar 2022: A.1.