The inflation rate hit a multi-decade high of 7.9% in February and now the Biden administration is warning that the March numbers could be even worse.
White House Press Secretary Jen Psaki said Monday that tomorrow’s Labor Department report on the consumer price index is expected to show another round of price increases in the U.S. economy, driven in part by the Russian invasion of Ukraine. “We expect March CPI headline inflation to be extraordinarily elevated due to Putin’s price hike,” Psaki told reporters.
At the same time, the White House expects the measure of core inflation, which excludes volatile categories such as oil and grains, to be lower. “We expect a large difference between core and headline inflation,” Psaki continued, “reflecting the global disruptions in energy and food markets.”
All in the details: Axios’s Neil Irwin says that beyond what could be a “nasty” headline number, the report will give an indication of whether the inflationary pressures in the economy are starting to ease. “The real question for the outlook lies in what is going on with underlying inflation trends — those tied to the economy's internal dynamics around wages and business pricing power, rather than geopolitical events,” Irwin writes.
Some analysts expect to see reduced pressure on the prices of goods, which have been driving inflation in recent months. Used car prices, which have played a powerful role in driving overall inflation higher, saw a drop at the end of March. But prices for services are rising and could take over as the main driver of sustained inflation.
Expectations rising: The consumer outlook for inflation rose to a new high in March, according to the Federal Reserve Bank of New York. Consumers expect to see inflation of 6.6% on an annual basis, up six-tenths of a point from the month before.
“The increase in short-term expectations was broad-based across age, education, and income groups,” says Bloomberg’s Alexandre Tanzi. “Inflation also pushed the one-year outlook for household spending and rent growth to new highs in data going back to 2013.”
Economists surveyed by Bloomberg see inflation moving even higher, with an average expectation of 8.4% in March.
Recession risk rising, too: The stubborn persistence of inflation is pushing the Federal Reserve to move more aggressively, and the central bank has started raising rates and will start draining liquidity from the economy in the coming weeks. Tighter monetary conditions are reducing growth estimates, and economists surveyed by The Wall Street Journal raised their odds of a recession occurring in the next year to 28%, up sharply from 13% a year ago.
“Risk of a recession is rising due to the series of supply shocks cascading throughout the economy as the Fed lifts rates to address inflation,” Joe Brusuelas, chief economist at RSM, told the Journal.
Some economists are much more pessimistic. Amy Crews Cutts of AC Cutts & Associates puts the odds of a recession at 70%. “To be seen not fighting it is politically unwinnable,” she told the Journal. “But the only policy response the Fed has is to tighten. Fed actions to curb inflation will lead to a recession sooner rather than later.”