Have We Hit Peak Inflation?

Shoppers stand by the vegetables aisle inside a Fresh & Easy store in Burbank
REUTERS/Mario Anzuoni
By Yuval Rosenberg

A disturbing and sad day here in New York, where 10 people were shot and dozens more were injured in a morning attack at a Brooklyn subway station. The incident reportedly is not being investigated as a terrorist act. The suspect remains at large.

Here’s what else you need to know today.

Have We Hit Peak Inflation?

Inflation accelerated in March, as the consumer price index rose 8.5% on an annual basis and 1.2% on a monthly basis, the Labor Department announced Tuesday.

It was the highest reading since inflation picked up in the wake of the pandemic, surpassing February’s 7.9% annualized increase, and the biggest since 1981. Gasoline, the price of which soared during March in the wake of Russia’s invasion of Ukraine, was the largest single contributor to the overall inflation level, accounting for more than half of the monthly increase.

Core inflation, which subtracts volatile elements such as food and fuel, rose a more modest 6.5% on an annual basis — lower than overall inflation, but still the highest reading in four decades.

Have we reached the peak? The monthly core inflation reading in March was 0.3%, the lowest level since September, which translates to 4% on an annual basis. That’s higher than the 2% target set by the Federal Reserve but well below the 10% annual rate some analysts have predicted. This provides some support for those who think March could represent a peak, with inflation easing during the rest of the year. Gas prices have come down significantly in April and used cars — the prices of which have soared during the pandemic as a result of a shortage of new cars — are finally getting a bit cheaper.

“Barring further severe disruptions, the March release is likely to be the peak in terms of year-over-year rates for both headline and core given that the base effects from last year’s surge in used car prices will begin rolling off in the April data,” analysts at Deutsche Bank predicted earlier this week. Analysts at Bank of America, Morgan Stanley and UBS said Tuesday that they think March will likely be the peak month.

Additionally, the Fed plans to raise interest rates more aggressively and start withdrawing liquidity from the economy, which should further reduce inflationary pressure in the coming months.

Still, there are serious concerns about inflation lingering, with the price of services beginning to rise, taking the place of goods as the primary driver of price increases.

“We have been at this juncture before where subtle shifts within the data make it appear that the level of inflation has reached its peak for the cycle only to keep marching higher,” Charlie Ripley of Allianz Investment Management said, according to Politico’s Ben White. “Going forward, the greater concern is really around how entrenched inflation has become as Americans continue to worry about rising prices.”

Blerina Uruci of T. Rowe Price warned that problems in the supply chain, which have been a primary driver of inflation, remain an issue. “The other red flag is Russia’s invasion of Ukraine and the rise of Covid in China. Those pose risks that the so-called normalization of supply chains takes longer to materialize,” she told The Wall Street Journal.

Manchin points a finger: Whether inflation is at a peak or not, Sen. Joe Manchin (D-WV) on Tuesday blamed the Biden administration and the Federal Reserve for failing to act quickly enough in response to price increases throughout the economy.

“Let me be clear, inflation is a tax and today’s historic inflation data tells another chilling story about how these taxes on Americans are completely out of control,” Manchin said in a statement. “The Federal Reserve and the Administration failed to act fast enough, and today’s data is a snapshot in time of the consequences being felt across the country. Instead of acting boldly, our elected leaders and the Federal Reserve continue to respond with half-measures and rhetorical failures searching for where to lay the blame.”

The West Virginia Democrat also called for less deficit spending and a comprehensive energy policy to address inflationary pressures. “Here is the truth, we cannot spend our way to a balanced, healthy economy and continue adding to our $30 trillion national debt. Getting inflation under control will require more aggressive action by a Federal Reserve that waited too long to act,” he said. “It demands the Administration and Congress, Democrats and Republicans alike, support an all-the-above energy policy because that is the only way to bring down the high price of gas and energy while attacking climate change.”

The comments could signal that Manchin has little intention of helping Democrats revive their Build Back Better social investment plan, which would increase public spending by trillions of dollars over 10 years. Manchin has cited inflation as a primary reason for not supporting the spending plan, and even a bill discussed by Democrats that fully offsets the proposed expenditures and provides some deficit reduction at the same time may not convince him to change his mind.

2021 Was the Deadliest Year in US History

Last year was the deadliest in U.S. history, the Associated Press reports, citing updated data from the Centers for Disease Control and Prevention. The United States recorded 3.465 million deaths, up about 80,000 over the record set in 2020. Deaths from Covid-19 rose from 351,000 in 2020 to more than 415,000. “Preliminary CDC data also shows the crude death rate for cancer rose slightly, and rates continued to increase for diabetes, chronic liver disease and stroke,” the AP’s Mike Stobbe says. “Drug overdose deaths also continued to rise.”

Test Your Knowledge of the Federal Budget and National Debt

Pop quiz time! The Treasury Department on Tuesday released its monthly statement for March, meaning that the official federal spending and revenue data are in for the first six months of fiscal year 2022. See how much you know about the federal budget and deficit by answering the questions below. The answers are at the bottom.

1. Federal receipts last month rose by 18% from a year earlier to $315.2 billion, reportedly the highest for any March on record. Federal receipts for the first half of the year totaled a record $2.1 trillion, up from $1.7 trillion for the same period a year ago. How much revenue did the government take in over all of fiscal year 2021?

A. $1.25 trillion

B. $3.15 trillion

C. $4.05 Trillion

D. $6.25 trillion

2. Outlays for March were $508 billion, down 45% from the same month a year ago. How much has the government spent over the first six months of the fiscal year?

A. $1.88 trillion

B. $2.79 trillion

C. $3.89 trillion

D. $4.39 trillion

3. The federal budget deficit for March was $193 billion, down 71% from a year earlier, when the government was still sending out stimulus payments. The March number brings the deficit for the first half of the year to $668 billion. How does that compare to the first half of last year?

A. Up $50 billion.

B. Down $50 billion.

C. Down about $500 billion.

D. Down about $1 trillion.

4. The national debt is now nearly $30.4 trillion. Of that, how much is debt held by the public — meaning it’s owed to individuals and entities outside the federal government?

A. $11.75 trillion

B. $23.85 trillion

C. $28.55 trillion

D. $30.40 trillion

5. The cost of interest on the public debt over the first half of the year was $290.3 billion. How does that compare to the same period last year?

A. Down 15%

B. Up 15%

C. Up 27%

D. Up 47%

Answers:

1. C. Federal receipts for fiscal year 2021 totaled roughly $4.05 trillion. The White House projects that receipts for this year will climb to more than $4.4 trillion.

2. B. Outlays for the first half of the year totaled $2.79 trillion, down 18% from $3.41 trillion a year ago.

3. D. The deficit for the first half of the year is about $1 trillion, or 61%, lower than the $1.7 trillion budget gap over the first half of fiscal year 2021.

4. B. Debt held by the public is approaching $24 trillion.

5. D. Inflation and rising interest rates have helped drive a 27% increase in interest on the public debt. Inflation compensation on Treasury inflation-protected securities (TIPS) is up $59 billion so far this year, according to Treasury officials cited by The Wall Street Journal.

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