By Natalie DeCoste
Consumers saw massive price increases in March as the U.S.’s economic recovery gained momentum and inflation picked up.
In March, consumer goods prices rose at the fastest pace in the last eight and a half years. The Labor Department said on April 13 that the consumer price index (CPI) rose 0.6% month over month, quicker than the previous month’s 0.4% increase. The 0.6% increase made for the highest monthly increase since August 2012.
The consumer price index measures what consumers pay for everyday items, including groceries, clothing, recreational activities, and vehicles.
The latest CPI figure represents a 2.6% price increase from the same period last year. The year-over-year price increase is the highest it has been since August 2018.
“One of the major things we’re seeing that marks a big change from recent years is that really for the first time in a decade you have a wide range of businesses with pricing power right now—we’re seeing that across the goods sector and the services sector. After a year of closures, people are eager to get out and spend, and they have the means to do it,” said Sarah House, senior economist at Wells Fargo Securities.
One of the most significant contributors to the price increases was the cost of gasoline, an often volatile component of the CPI. Gasoline prices shot up 9.1% in March and responsible for about half the overall CPI increase. Gasoline is up 22.5% from a year ago, part of a 13.2% increase in energy prices.
Gus Faucher, chief economist at the PNC Financial Services Group, does not think that the significant increase in gas prices will last long. He said that such increases are only a cause for concern if we see sustained acceleration of core inflation which is currently at a moderate 0.3%.
In general, economists do expect to see consumer prices increasing over the next few months. During the coronavirus pandemic, there has been muted inflation as the virus has kept consumer spending down. Whether this increase is temporary remains to be seen.
The Federal Reserve said that it expects inflation to rise temporarily this year because of growing demand fueled by increased vaccination rates, falling restrictions on businesses, trillions of dollars in federal pandemic relief programs, and sufficient consumer savings.
The Labor Department report “is the clearest indication so far that the signs of mounting inflation evident in business surveys and producer prices are feeding through to stronger consumer prices. For all the focus on supply disruptions pushing goods prices higher, the strongest upward pressure on prices is coming from the services sector,” wrote Michael Pearce, senior U.S. economist at Capital Economics.
Other areas that saw increases that factored into the CPI include food. Food was up 0.1% for March and 3.5% for the year over year measure. The food-at-home category also increased by 3.3%. All six of the government’s measures of grocery store indexes rose, with the biggest gain of 5.4% in the category of meats, poultry, fish, and eggs.
