Consumer prices: US inflation rate rises to 8.5 percent – highest level since December 1981
Dusseldorf Inflation in the USA increased further in March. Consumer prices in the world’s largest currency area increased by 8.5 percent compared to the same month last year. This was announced by the Department of Labor on Tuesday in Washington.
The last time inflation was at such a high level was in December 1981. Experts surveyed by Bloomberg had previously expected 8.4 percent. In February, prices had risen by 7.9 percent.
The rise in energy prices is becoming increasingly noticeable. Energy prices rose 32.0 percent in March after 25.6 percent in the previous month. However, the drastic increase in energy prices is only likely to have a full impact on the price level in the coming months.
Groceries cost 8.8 percent more in March. The cost of housing rose by five percent. The core inflation rate, which excludes the volatile developments in energy and food, is 6.5 percent – here too the highest value for 40 years.
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The US Federal Reserve recently gave a clear signal to counteract the strong price pressure. She now wants to reduce her balance sheet, which is now almost nine trillion dollars, faster than originally planned, as director Lael Brainard recently explained.
Fed meets again on May 3rd and 4th
At its last meeting, the Fed raised interest rates by 0.25 percentage points for the first time since 2018, as expected. It may even opt for a 0.5 percentage point rate hike at one of its upcoming meetings. According to market expectations, the interest rate should be between 2.25 and 2.75 percent at the end of the year. The next Fed meeting is on May 3rd and 4th.
The monetary authorities have to find a difficult balance between the fight against inflation and the possible threat of a recession. The consequences of the war in Ukraine parallel to the change in monetary policy are causing economic concerns. At the same time, however, the high inflation also increases fears of a wage-price spiral in which consumer prices and wage levels reinforce each other. The labor market in the USA is very robust, with an unemployment rate of 3.6 percent, there is almost full employment.
The signals of a stricter Fed policy caused bond yields to rise noticeably in the short term. Immediately after the release of the new inflation data on Tuesday, ten-year US bonds are yielding 2.767 percent. Two-year bonds yield 2.5451 percent. Yields were even slightly higher in the morning. Yields on 10-year Bunds hit their highest level since mid-2015 on Tuesday.
In Germany, prices rose by 7.3 percent in March. The Federal Statistical Office confirmed an initial estimate on Tuesday. Inflation in the euro zone is currently 7.5 percent. The Governing Council of the European Central Bank (ECB) meets on Thursday for its regular meeting.
More: Fed Chair Brainard signals series of interest rate hikes and strong balance sheet reductions