US inflation hits 40-year high in another blow to Joe Biden Business

US inflation has hit a new 40-year high, threatening to derail the world’s largest economy at a crucial time for President Joe Biden.

Consumer prices in March were 8.5% higher than a year earlier, compared to 7.9% in February. US inflation hasn’t been this high since late 1981, according to the Bureau of Labor Statistics.

Food prices rose nearly 9% on the year, while energy prices soared nearly a third.

Used vehicles are up 35%, new cars up 12.5%.

James Knightley, an economist at ING, said inflation was “nearing the peak” but was only expected to decline slowly.

He said: “Unfortunately, the descent will be long and slow given ongoing supply chain issues, significant labor market tensions and corporate pricing power.

“Then there is the housing component. House prices have risen more than 30% nationwide since the start of the pandemic, with demand fueled by massive fiscal and monetary stimulus while housing supply has remained constrained.

Supply chain issues are exacerbated by tough lockdown measures imposed in China in response to the latest wave of omicron infections, affecting truck and container shipping in the world’s second-largest economy.

Silvia Dall’Angelo, an economist at Federated Hermes, said the sharp rise in inflation means a double hike in interest rates of 0.5 percentage points could be on the cards at the Reserve’s May meeting. federal.

She said: “By the Fed’s own admission, the central bank is behind in its fight against inflation and is eager to catch up to larger rate hikes and the start of quantitative tightening in upcoming meetings. – an uncertain business given that monetary policy affects the real economy with lags of between 12 and 18 months, and it is not entirely clear how quantitative easing works.

“While the Fed still believes it will be able to stage a soft landing, that rarely happens, and the convergence of cost inflation that squeezes real incomes, monetary and fiscal tightening could spell a blow. harder than desired for down demand. double.”