A person pumps gas at Fuel City in Dallas, Tex.Tony Gutierrez/The Associated Press
A key U.S. inflation measure jumped in March as gas prices soared, the latest sign that the Iran war is pushing up the cost of living and delaying any interest rate cuts by the Federal Reserve.
An inflation gauge monitored by the Fed rose 0.7 per cent in March from February, up sharply from the previous month, the Commerce Department said Thursday. Compared with a year ago, prices rose 3.5 per cent, the biggest increase in almost three years.
Excluding the volatile food and energy categories, core inflation rose 0.3 per cent in March from February, and it was 3.2-per-cent higher than a year earlier. The annual figure is above February’s reading of 3 per cent.
The jump in gas prices has pushed inflation further away from the Fed’s 2-per-cent target. Outgoing Fed Chair Jerome Powell signalled at a news conference Wednesday that the central bank would likely be on hold for months as it evaluates the impact of the Iran war. The Fed has kept its key short-term interest rate unchanged after cutting it three times last year. The central bank typically keeps rates elevated – or even raises them – to combat higher inflation.
Gas prices jumped nearly 21 per cent in March from the previous month, the report said, while grocery prices actually slipped 0.1 per cent. Clothing costs climbed 1 per cent just in March.
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The average price of a gallon of gas nationwide rose to US$4.22 a gallon Thursday, according to AAA, up from US$2.98 before the war began. U.S. oil prices cooled a bit Thursday morning but still topped US$105 a barrel, up from about US$67 before the war.
Still, the Fed typically pays more attention to core prices, and how much higher energy costs feed through to core inflation in the coming months will be a major factor in how the central bank decides on its next moves.
“We’re very well aware that people are experiencing higher gas prices all over the country now,” Powell said Wednesday. “And that hurts.”
Thursday’s report also showed that consumer spending soared 0.9% last month, with most of the increase reflecting the sharp jump in prices. But it also indicates Americans lifted their spending a bit even after adjusting for inflation, a sign of consumer resilience.
The economy expanded at a modest 2-per-cent annual rate in the first three months of the year, the Commerce Department also said Thursday, up from an expansion of just 0.5 per cent in last year’s final quarter, when growth was held back by the six-week government shutdown.