Wholesale inflation has surged over the past year as the producer price index (PPI) rose 10% annually in February latest data published by the Bureau of Labor Statistics (BLS).
The PPI rose 0.8% in February alone, according to the BLS report, after monthly increases of 1.2% in January and 0.4% in December 2021. The PPI is a measure of the average change in selling prices for domestic manufacturers , before their goods reach consumers .
The rise also came after the Labor Department reported that annual consumer inflation hit a third straight 40-year high in February. increasing by 7.9% annually during the month. This marked the highest rate of inflation since January 1982. But now supply chain problems are leading to rising costs for manufacturers, which could lead to higher inflation rates in the coming months as selling prices rise.
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MORTGAGE RATES RISE AS RISING INFLATION CONCERNS INVESTORS
The Federal Reserve is raising interest rates to fight inflation
Similar to the Consumer Price Index (CPI), price increases for the PPI were led by growth in food, energy and trade services, according to the BLS report. In fact, nearly 40% of February’s monthly gain was due to higher gasoline prices, which rose 14.8%.
Amid rising inflation, the Federal Reserve announced Wednesday at its March meeting that it would raise the federal funds rate by 25 basis points. The central bank’s rate hike is the first in three years, and economists are predicting the Fed is likely to hike rates again this year and next.
“Job gains have been strong in recent months and the unemployment rate has fallen significantly. Inflation remains high, reflecting supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures,” the Federal Open Market Committee said in a statement after the meeting.
According to Morning Consult economist John Leer, raising interest rates too quickly could slow corporate growth.
“The Fed faces a delicate balancing act to achieve a soft landing,” Morning Consult said in a March 15 economic report. “It wants to raise interest rates to fight inflation, but it doesn’t want to end the recovery prematurely. The escalating war in Ukraine will make it even harder for the US to keep growing this year.”
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INFLATION RISE TO ANOTHER NEW 40-YEAR HIGH IN FEBRUARY
The Ukraine-Russia conflict could drive up prices, the economist says
President Joe Biden continues to impose sanctions on Russia amid the country’s conflict with Ukraine, and recently announced a ban on US imports of Russian oil, gas and energy, targeting what he called “Russia’s main artery.”
“I will do everything to minimize Putin’s price hike here at home and coordination with our partners,” Biden said.
As the conflict rages on, prices could continue to rise despite the Fed’s efforts to control inflation, according to Dawit Kebede, senior economist at the Credit Union National Association.
“A Federal Reserve rate hike will slow consumer demand by making borrowing costs more expensive,” Kebede said in response to rising inflation. “However, there is little the Fed can do to control prices caused by global conflict, just as little it can do to improve supply chain disruptions.”
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