by Xiong Maoling, Gao Pan, Matthew Rusling
WASHINGTON, March 10 (Xinhua) -- Newly released data showed that U.S. consumer prices in February continued to rise at the fastest annual pace in four decades, a fresh reminder of the persistently high inflation, cementing the expectation of looming Federal Reserve rate hikes.
Oil prices hit record highs in recent days amid the Russia-Ukraine conflict, further fueling inflation, which, analysts said, could force Fed to raise rates more quickly, and further dim the prospect Democrats face in the upcoming midterm elections.
INFLATION SURGE PERSISTS
The Labor Department's Bureau of Labor Statistics (BLS) reported Thursday that the consumer price index (CPI) last month surged 7.9 percent from a year earlier, the largest 12-month growth since the period ending January 1982.
The so-called core CPI, which excludes food and energy, rose 6.4 over the last 12 months, the largest 12-month change since the period ending August 1982, according to the report.
Persisting supply chain constraints, shipping bottlenecks, robust consumer demand for goods amid the COVID-19 pandemic, along with a historically tight labor market, have pushed up inflation over the past year, contradicting to earlier vows from the Fed and the White House that inflation would be "temporary."
"Although the magnitude and drivers were largely as expected, inflation continues to rage at a pace deeply unsettling for consumers and policymakers alike," Sarah House and Michael Pugliese, economists at Wells Fargo Securities, wrote in an analysis.
Adding to inflation pressures, U.S. President Joe Biden announced Tuesday that the administration is banning all imports of Russian oil and gas energy, while acknowledging that gas prices in the country are "going to go up further" with this action.
The U.S. national average for a gallon of regular gasoline hit a fresh record high of 4.318 U.S. dollars on Thursday, up nearly 16 percent from a week ago, and up 24 percent from a month ago, according to data from the American Automobile Association (AAA).
"Expectations that February would prove to be the peak in this cycle have been dashed" by the spike in oil prices since the Russia-Ukraine military conflict last month, House and Pugliese said, adding that the recent surge in commodity prices stand to push inflation "even higher."
The economists estimate that if gasoline prices as reported by AAA held at 4.25 dollars for the remainder of March, prices would be up close to 15 percent in seasonally adjusted terms and would add 0.6 points to March's monthly CPI increase alone.
DoubleLine Capital CEO Jeffrey Gundlach was quoted by CNBC as saying earlier this week that inflation could surge to 10 percent this year.
According to a report released by the American Psychological Association (APA) on Thursday, a staggering 87 percent of Americans said the rise in prices of everyday items, such as gas prices, energy bills, grocery costs, due to inflation was a significant source of stress.
RATE HIKES CEMENTED
With inflation running well above its longer-run objective of 2 percent, the Fed signaled in January that it was ready to begin a series of interest-rate hikes in March.
At a Congressional hearing last week, Fed Chairman Jerome Powell reaffirmed the central bank's plan to raise interest rates in the upcoming policy meeting, noting that he is inclined to support a 25-basis-point rate hike and won't rule out a half percent hike at subsequent meetings.
"This morning's CPI print was in line with expectations and should lock in a 25 bps rate hike from the FOMC next week," House and Pugliese said, referring to the Federal Open Market Committee (FOMC), the Fed's policy-setting body.
Craig Allen, president of the U.S.-China Business Council, told Xinhua Wednesday that rising price of oil makes the inflation control job more difficult in the short term, and he suspects that the Fed would stick to its plan to raise interest rates at the policy meeting next week.
"What it does over the medium and the longer term, say 12 to 18 months, we don't know, but the higher inflation is, it is more likely higher interest rates will go," Allen said.
Diane Swonk, chief economist at the major accounting firm Grant Thornton, said in a blog earlier this week that the Fed is now expected to raise rates seven times in 2022 and three more times in 2023, which is a half percent more than her team's forecast a month ago.
"What would stop the Fed from acting? A seizure in credit markets, which would precipitate a harder landing than a Fed-induced slowdown," Swonk said.
MIDTERM HEADWINDS
Stubbornly high inflation, which has eroded businesses' profit margins and households' purchasing power, is negatively impacting Biden's poll numbers and adding to the already strong headwinds Democrats face heading into the midterm elections.
Biden is negotiating with other major oil exporters including Saudi Arabia, Iran and Venezuela to increase their sales to the United States and Europe, in a bid to compensate for any lost barrels from Russia.
In a sign of relief, the United Arab Emirates signaled Wednesday that the country is willing to increase oil production and will encourage the Organization of the Petroleum Exporting Countries (OPEC) cartel to boost supply, sending oil prices plunging after days of surge.
Despite the silver lining, whether other major players will shift their positions remains to be seen.
As the Biden administration turns to other oil-producing nations for help, Republicans argue that all this could have been avoided if Biden had not placed myriad restrictions on the U.S. fossil fuels industry after taking office.
"The Biden Administration has used its considerable executive authority to actively target affordable American-made oil and natural gas," Senate Republican Leader Mitch McConnell said Tuesday.
Biden, in announcing the U.S. embargo against Russian oil, said loosening environmental regulations or pulling back clean energy investment will not lower energy prices for families.
In his State of the Union address earlier this month, Biden outlined a four-point plan to tackle inflation, and also highlighted corporate consolidation in areas like the meat and energy industries as one cause of inflation.
"The approach that the Biden administration is using is to try to address what they consider to be over concentration of power in a few industries," Allen said. "Will that be effective in reducing inflation? I think it's quite unlikely."
Biden's approval rate on Thursday stood at a paltry 42.3, with job approval rate on economy sitting at 38.3, according to Real Clear Politics' average polls.
If Biden gets low marks on the Ukraine crisis, in addition to all his other woes, that could bode poorly for Democrats in November's midterm elections, analysts said. ■