CPI Sees Largest Increase in Over 15 Years, Fueled by High Gas Prices

Economists say inflation may have peaked but is still expected to be well above the Fed’s 2% goal through next year.

April 13, 2022

Consumers Hurt by Inflation

CHICAGO—The U.S. consumer price index (CPI) rose 1.2% in March, which is the largest monthly increase in 16.5 years, according to the Labor Department, with gasoline prices surging 18.3%, the largest since June 2009, and making up half the increase in the CPI, reports Reuters. Gas prices increased to an average of $4.33 per gallon in March, according to AAA.

During the past 12 months, the CPI has increased 8.5%, the largest year-on-year gain since December 1981, after a 7.9% jump in February. Grocery costs rose the most in March compared to other consumer prices, with groceries rising 1.5%. Groceries have increased 10% on a year-on-year basis, the most in 41 years.

According to a survey by Numerator, the dollar store grocery inflation rate is nearly double other channels. Grocery prices sharply rose in the dollar channel, up 21.6% versus a year ago, compared to 14.8% in February 2022. The channel with the second highest increase was online (+13.2%), followed by mass (+10.5%), food (+9.6%) and club (+7.5%).

All generations saw double-digit grocery inflation, with Gen Z most impacted, Numerator found. Consumers in the Boomers+ generation crossed into double-digit grocery inflation for the first time in March (+10.5% versus a year ago) but remained the least impacted generation compared to Gen X (+10.9%), millennials (+11.1%) and Gen Z (+14.6%).

Aside from food and energy, consumer prices for goods dropped by the most in two years. Reuters reports that goods prices should continue to decline as consumers switch to services like travel and entertainment as COVID-19 restrictions ease.

"We expect demand for goods to waver as spending pivots back toward services, and this transition should temper goods inflation," said Michael Pugliese, an economist at Wells Fargo in New York, told Reuters. "Pent-up demand for travel should lead to a few more months of solid gains for airfare and lodging prices, but there will likely be less scope for catch-up come autumn."

Reuters reports that there is a consensus that March will be the peak of the annual CPI rate, but inflation will remain well above the Federal Reserve’s target of 2% through 2023 at least. Consumers are also becoming more price conscious because they have less purchasing power, and this makes it harder for businesses to pass along higher prices. Inflation-adjusted weekly earnings fell 1.1% in March.

Though demand for goods is cooling, increased appetite for services will keep inflation simmering, says Reuters. Supply chain disruptions from the Russia-Ukraine war and lockdowns in China amid a COVID-19 resurgence will keep prices for some good high. Plus, American workers have been feeling the sting of inflation and are demanding large wage increases.