Washington– to rise Gas prices That’s expected to trigger a spike in inflation when the government announces consumer prices for March on Friday, likely unnerving the Fed’s inflation fighters and adding to the political challenges of higher costs for the White House.
The inflation rate is likely to rise to 3.4% in March compared to last year, according to economists’ estimates, which represents a sharp increase compared to last year. February by 2.4%. On a monthly basis, prices are expected to rise 0.9% in March from the previous month, according to a survey of economists conducted by data provider FactSet. That would be the largest monthly increase since 2022.
So far there has been a slight moderate trend in inflation since last fall. A reading of 3.4% would be the highest in nearly two years, and well above the Fed’s target of 2%.
“There’s going to be a headline shock here,” said Michael Metcalfe, head of macro strategy at State Street, which produces price statistics, a measure of inflation drawn from millions of online prices. Their data indicates that inflation may jump by only 1.5% in March compared to February.
Excluding the volatile food and energy categories, core prices are expected to rise 2.7% in March from a year earlier, compared to 2.5% in February. From February to March, core prices are expected to rise by 0.3%, a faster pace than the Fed’s target.
Gas prices Interest rates rose by about 20% in March, a move that saps consumers’ ability to spend on other goods and services and as a result could also slow economic growth. At least in the short term, many Americans can only make limited changes to their daily driving habits, which are largely determined by where they live, shop, and work. As a result, most people will pay higher prices for gas, and will likely reduce their prices elsewhere.
Gas prices averaged $4.17 per gallon across the country on Thursday, up 69 cents from last month.
The big question for consumers and the economy is whether the rise in oil and gas prices will create a sustained and broader inflationary shock, similar to what happened in the wake of the pandemic in 2021-2022. Inflation reached a peak 9.1% In June 2022, as COVID-19 disrupted supply chains and multiple rounds of stimulus checks increased consumer demand. The prices of groceries, furniture, restaurant meals, and many other goods and services rose.
This time, economists say Labor market Consumer spending has also become weaker, and no significant government stimulus checks have been issued to stimulate demand. The unemployment rate is low, at 4.3%, but companies They don’t scramble to hire As was the case as the economy emerged from the pandemic, which prompted many companies to offer steep wage increases to attract and retain workers.
Rapid wage increases and strong income growth helped consumers overcome higher prices caused by supply chain disruptions due to the pandemic, and led to a sharp rise in demand that prompted many companies to raise prices further.
“This is where it really differs, which is that we don’t see anywhere near as strong demand,” said Alan Dittmeister, an economist at UBS. He added that in 2021 and 2022, income growth was “really picking up strongly. We’re not seeing that now.”
Detmeister believes a better comparison would likely be with 1990-91, when rising oil and gas prices caused by Iraq’s invasion of Kuwait contributed to a recession but did not lead to a jump in inflation, partly due to weak consumer spending.
The impact of higher gas prices on inflation is similar, in some ways, to the tariffs imposed by President Donald Trump, in that their impact will depend largely on the size and duration of the increase.
For now, economists expect the impact in March and April to be largely limited to energy-intensive industries, such as airlines, package delivery services and public transportation. Overall, the United States economy is less dependent on oil and gas than in previous decades.
However, the big jump in inflation – which will almost certainly last for several months – has already occurred The discussion turned At the Federal Reserve, which started the year expecting to cut its key interest rate at least twice. But a An increasing number Fed officials are now willing to consider raising interest rates instead if core inflation does not cool significantly.
Most officials will almost certainly support keeping the Fed’s key interest rate unchanged in the coming months, at around 3.6%, while they assess how the economy is developing. Investors now do not expect the Fed to cut interest rates until late 2027.
Higher gas prices are difficult for the Fed because they could also slow growth by squeezing consumer spending, which could lead to layoffs. The Fed usually lowers interest rates to encourage more spending if unemployment rises, while it raises interest rates to combat inflation.
Rising oil and gas prices will also likely push up grocery prices, creating more pain for consumers who have already absorbed a roughly 25% jump in food costs since the pandemic. Almost all groceries are shipped by diesel-powered trucks, and diesel prices have risen more than regular gas prices. However, analysts do not expect food prices to accelerate for another month or two.