Stocks climb, erasing their losses in a tumultuous week.

A measure of inflation that the Federal Reserve is watching closely accelerated again in January, hitting a new 40-year high and accelerat...


A measure of inflation that the Federal Reserve is watching closely accelerated again in January, hitting a new 40-year high and accelerating on a monthly basis as food and energy prices rose sharply. increase.

The personal consumer spending index, which the Fed targets as it aims for average annual inflation of 2% over time, has risen 6.1% over the past year, the fastest rate of increase fast since 1982. Prices rose 0.6% in January from December, compared to 0.4% the previous month.

The data, released by the Commerce Department on Friday, served as a reminder that inflation remains stubbornly high as Russia’s invasion of Ukraine pushes up oil and other commodity prices and promises to continue boosting the economy. ‘inflation.

The Fed is preparing to steadily withdraw economic support in the pandemic era in an effort to calm consumer demand and keep prices in check. The White House is watching inflation closely as rising food, rent and gas prices shake consumer confidence and dent President Biden’s approval rating ahead of November’s midterm elections. .

The new inflation reading will come as no surprise to economists or policymakers – the Personal Consumption Expenditure figure is quite predictable as it is based on the Consumer Price Index figures which are coming out faster, as well as other data already available. But he reiterates that the price hikes, which were expected to prove temporary as the pandemic economy reopened, instead lasted almost an entire year and seeped into areas unaffected by the coronavirus.

Rapid price increases have affected a wide range of goods and services, including used cars, beef, chicken, restaurant meals and furniture, and several trends are likely to keep inflation low. raised. Notably, wages are rising rapidly and employers are finding they can pass on their rising labor costs to buyers.

Economists are also watching with suspicion the conflict in Ukraine, which has already caused oil and gas prices to rise and is expected to drive up commodity prices further. But some are also betting that the uncertainty it has spurred could prompt the Fed to take a more cautious approach as it tries to slow the economy. Store the prices were raised friday like reduced traders the Federal Open Market Committee is expected to make a significant rate hike of half a percentage point in March in an effort to decisively curb inflation.

“Despite the prospect of higher inflation, the Russian invasion now leads us to believe that the FOMC will raise rates by a more conservative quarter point,” Kathy Bostjancic, chief U.S. economist at Oxford Economics, in a research note.

Goldman Sachs researchers estimate that a $10 increase per barrel of oil would raise headline inflation in the United States by one-fifth of a percentage point while reducing economic output by just under one-tenth of a percentage point. percentage point.

While it’s unclear how much gas prices will skyrocket – it depends on the depth of the conflict, the extent of the sanctions and Russia’s reaction – several commodity prices have spiked in arrow in the hours following the start of the invasion in Ukraine.

Brent crude oil, the world benchmark, rose to over $100 a barrel Thursday after the invasion began before moderating again on Friday. There is always a risk that oil prices will rise further if Russia reacts to US and European sanctions. Russia is a major energy exporter to Europe.

Some economists have noted an uncomfortable gas shock precedent.

Rising energy prices in the 1970s helped exacerbate inflation, making rapid price increases a lasting feature of the economy, which only faded after a painful response from the Fed. The central bank pushed interest rates – and unemployment – ​​into double digits to depress price increases during what is now being called the Great Inflation.

This episode came after years of rapid price increases that the Fed had been slow to mitigate. This time, the central bank is preparing to quickly withdraw its support.

The Fed is expected to launch a series of rate hikes in March, policy measures that should slow lending and spending, which could translate into weaker hiring, more subdued economic growth and more modest price gains.

“The situation in Ukraine probably doesn’t change the fundamental conclusion that it’s time to change monetary policy,” said Julia Coronado, founder of MacroPolicy Perspectives. “They’re not just going to suspend all interest rate increases because there’s a war in Ukraine.”

Christopher Waller, a Fed governor, said in a speech late Thursday that the conflict could contribute to uncertainty, but for now the Fed should quickly withdraw support for the economy to try to control “alarming” inflation.

He suggested that if Friday’s inflation report, along with other upcoming data “indicates that the economy is still extremely hot, a strong argument can be made” for raising interest rates by a half a percentage point in March, twice the usual size of the increase.

Fed officials seem ready to debate whether a bigger-than-usual increase is warranted when they meet next month.

While the Fed is officially targeting headline inflation, it is also closely watching a measure of core prices that excludes fuel and food costs, both of which are rebounding month-over-month. Core inflation rose 5.2% in January from a year earlier, the fastest rate of increase since 1983. It has posted monthly increases of 0.5% for four consecutive months.

Annual inflation is expected to begin to mechanically slow over the next few months, with prices measured against higher figures from last spring, when inflation started to pick up. The decline in government support is also weighing on household income, which could eventually contribute to slowing spending somewhat.

Credit…Amir Hamja for The New York Times

But the moderation in price increases could turn out to be more subdued than economists and policymakers had expected, thanks in part to the potential for higher energy costs as the conflict in Ukraine escalates.

While the Fed has primary responsibility for controlling inflation by guiding economic demand, the White House is trying to roll out policies to help supply catch up and has pledged to do everything possible to prevent prices oil and gas from rising to unsustainable levels during the Russian crisis. conflict.

“I know it’s tough and Americans are already hurting,” Biden said during a speech on Thursday. “I will do everything in my power to limit the pain that the American people feel at the gas pump. It is essential for me. But this aggression cannot go unanswered.

Rising fuel prices are painful for consumers, but economic decision makers usually try to outrun them when setting policy because energy costs are so volatile. But officials are watching closely to see if inflation continues to widen into categories that have been less driven by pandemic-related supply constraints, such as rents and other services.

Strong consumer spending has helped fuel higher prices, giving businesses the means to charge more. Friday’s report also showed personal spending rose 2.1% in January from a year earlier, beating central analysts’ forecasts in a Bloomberg survey.

SeaWorld, the amusement park chain, posted strong financial results at the end of 2021 as the brand managed to attract customers and charge more, even though many foreign travelers stayed home thanks to the pandemic in Classes.

“Our pricing and product strategies, along with the strong consumer demand environment, continued to drive higher realized prices and strong customer spending,” said Elizabeth Castro Gulacsy, the company’s chief financial officer, during of a conference call on February 24.

“We are operating in a good economic environment,” the company’s CEO Marc Swanson later added. “So that obviously benefited us.”

Yet even as the economy enters 2022 with high consumption, policymakers will be watching to see if demand wanes on its own as government pandemic relief programs run out of steam and the resulting uncertainty of the invasion of Ukraine threatens confidence.

“It is possible that the state of the world will be different following the attack on Ukraine, and that may mean that a more modest change” in monetary policy is appropriate, said the Fed’s Waller. . “But that remains to be seen.”

Ben Casselman contributed report.

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Newsrust - US Top News: Stocks climb, erasing their losses in a tumultuous week.
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