4 min read

Inflation Hits 40-Year High

The cost of goods and services rose to a 40-year high in March, prompting finger-pointing in Washington and a new low for President Biden's approval ratings.
Inflation Hits 40-Year High

The Labor Department said Tuesday that the consumer price index – which measures the cost of goods including gasoline, health care, groceries and rents – rose 8.5% in March from a year ago, the fastest pace since December 1981, when inflation hit 8.9%. Prices jumped 1.2% in the one-month period from February, the largest month-to-month jump since 2005.

Strong consumer demand, supply chain constraints, and the ongoing war in Ukraine all appear to be contributing factors to the rising inflation, but the rising prices have "likely peaked," said Bank of America analysts on Tuesday.

According to Felix Simon for Axios, there was both good and bad news in Tuesday's inflation report. "The bad news: Consumer prices have risen by a shocking 8.5% over the past year, a rate of increase not seen in more than 40 years. The good news: That number has probably gotten as high as it's going to get, and could soon start coming down."

Why inflation may have already peaked (Felix Simon - Axios)

Excerpt from Axios: The headline inflation figure, which spiked by 1.2% in March alone, has been driven overwhelmingly by energy prices. Core inflation, which excludes food and energy, was relatively subdued, rising only 0.3%. The Fed is going to keep on raising rates all year. The central bank tries to ignore volatile food and energy prices, but core inflation, at 6.7%, is well above the Fed's 2% target.
Embed from Getty Images

Many analysts and policymakers were caught off guard by the rapidly-increasing inflation figures, so Dylan Matthews for VOX takes a deep dive into the competing theories on inflation and what he and other experts got wrong." Due to a combination of rapidly growing wages through all of 2021, plus trillions in government fiscal support, there has just been too much money around combined with insufficient goods and services to spend it on."

How I (and US policymakers) got inflation wrong (Dylan Matthews - VOX)

Excerpt from VOX: The US responded to the recession with an unprecedented surge in government spending programs that meant accelerated consumer spending, but spending that wasn’t necessarily connected to whether people are getting jobs. In particular, as many have noted, it meant accelerated spending in goods. During the pandemic, people have been understandably less interested in going to restaurants, taking yoga classes, etc. So they bought stuff instead. A lot of stuff. The stimulus checks might have accelerated this phenomenon just as the virus did.
Embed from Getty Images

Although much of the blame for inflation can be attributed to the government stimulus during the worst of the pandemic, according to Jessica Chasmar for FOXBusiness, "President Biden has gone through painstaking efforts to shirk responsibility for the state of the economy, blaming everyone from Russian President Vladimir Putin to meat conglomerates for record inflation."

On Tuesday, the President wrote in a tweet, "Putin’s invasion of Ukraine has driven up gas prices and food prices all over the world. 70% of the increase in prices in March came from the Putin Price Hike. I’m doing everything I can to bring down prices and address the Putin Price Hike."

The invasion of Ukraine has certainly contributed to food and energy prices while exacerbating the inflation issue, but simply not to the extent that the White House is claiming.

Biden, WH blame everything but government spending for inflation (Jessica Chasmar - FOXBusiness)

Excerpt from FOXBusiness: Biden’s own economic advisers also reportedly objected to claims that corporate greed is the problem. In February, members of the White House Council of Economic Advisers pushed back against the administration’s claims tying inflation to corporate consolidation and monopoly power, the Washington Post reported.
Embed from Getty Images

As a result of the economic situation and blame being shifted to the President, Biden's approval rating has fallen to a new low of 38% according to a recent CNBC survey.

"Americans harbor some of the most downbeat views on the economy since the recovery from the Great Recession, and some of their attitudes are in line with those seen only during recessions, according to the latest CNBC All-America Economic Survey," writes Steve Liesman for CNBC. "Amid soaring inflation, 47% of the public say the economy is 'poor,' the highest number in that category since 2012. Only 17% rank the economy as excellent or good, the lowest since 2014."

Biden’s approval falls to new low amid economic pessimism, inflation woes, CNBC survey finds (Steve Liesman - CNBC)

Excerpt from CNBC: Jay Campbell, partner at Hart Research and the Democratic pollster for the survey, said the problem for Biden is that the inflation issue is bipartisan. "Cost of living has just blown everything else, including Covid, out of the water. And part of the reason for that is, there are attitudes about the economy that are largely a partisan phenomenon," he said. "That is not the case with inflation, or at least not right now. It is the top issue for Democrats, independents and Republicans."
Embed from Getty Images

Read more in our special report:

Special Report: The Fed
The Federal Reserve promises swift action after US inflation rises to 8.5%. A review of the Fed’s pivotal role in economic policy.