Fastest Pace Since January 1982
- Consumer Prices (CPI) were up 7.9 percent in February 2022, strongest growth pace seen since 1982
- Core CPI, excluding fuel and energy prices, was up 6.4 percent year-over-year for February 2022
- CPI inflation for Food & Beverages purchased for at-home consumption outpaced total inflation by a wide margin
- CPI inflation for Transportation spending renewed its double-digit growth surge in February 2022, up 21.7 percent year-over-year, led by Motor Fuel prices
The Consumer Price Index (CPI) accelerated further in February 2022, up 7.9 percent year-over-year. This translates into a 0.8 percent monthly gain and is the third consecutive month-over-month acceleration in the data. This trend demonstrates that current conditions are driving inflation, rather than any spillover effects remaining from volatile data published beginning in early 2021. No category of CPI components posted declines in February 2022, with the Transportation and Food & Beverage categories leading the charge among sub-index gains. Core CPI was also up strongly in February, posting a 6.4 percent year-over-year gain (+0.5 percent Feb. ’22 vs. Jan. ’22). Inflation is entrenched across all consumer categories, and recent gains in oil prices, persistent home price appreciation, and strong wage growth indicate that much of the same can be expected in the months ahead.
Housing CPI gained 5.9 percent year-over-year in February 2022. Gains above 4 percent outpace the growth rates seen during the lead-up to the housing market’s collapse in 2008, and current conditions have now seen numbers north of 4.5 percent for five consecutive months. With interest rates set to rise throughout the coming two years in response to Federal Reserve monetary policy, higher housing costs will compound with higher interest rates to continue to make homebuying difficult for those without substantial savings and solid gains in their paychecks.
Consumer prices for Transportation have re-established their status as the clear leader in year-over-year inflation among CPI categories. CPI for Transportation was up 21.1 percent versus February 2022 – up from 20.9 percent in January. The Motor Fuel subcategory was up by 38.1 percent year-over-year (6.7 percent for Feb. ’22 vs. Jan. ’22). Eye-popping results for the Motor Fuel category will likely remain entrenched in the months to come as oil prices have spiked in March in response to the ongoing conflict in Ukraine and sanctions on Russia, in response, now extending to that nation’s oil and gas exports. The Motor Vehicle Parts & Equipment subcategory also continued to surge, however – up by 14.3 percent in February 2022. Supply chain issues among new vehicle manufacturers are also still pressuring the cost of buying and maintaining used vehicles.
Food & Beverages accelerated into February 2022 to a new high among the current pandemic-era results. Prices for Food & Beverages were up by 7.6 percent year-over-year (1.0 percent Feb. ’22 vs Jan. ’22). The Food At Home subcategory outpaced price growth in purchases of Food Away From Home, +8.7 percent year-over-year versus +6.8 percent, respectively. Adding in a 6.6 percent year-over-year price gain in Apparel in February 2022, and all categories of ‘necessities’ (food, clothing, fuel, shelter) are acting as drivers of total CPI inflation. Consumer spending faces a tough task in supporting U.S. economic activity in the months to come, as even healthy wage growth across industries will likely fall short of the pace of consumer price inflation. Average Hourly Earnings growth, in year-over-year terms, was 6.7 percent for February 2022, according to Bureau of Labor Statistics published on March 4th.
In order to fight inflationary pressures, the Federal Reserve is expected to raise interest rates five times this year, in 25 basis point increments, beginning with the March meeting next week. The urgency facing the Fed has been clear in the past few months’ worth of CPI inflation releases, each eating further into 40-year highs not seen since the early 1980s. Geopolitical tensions will now compound ongoing supply chain and labor resource constraints through the foreseeable future and make taming CPI inflation a daunting task that nonetheless requires a delicate balance from the Federal Reserve’s monetary policy decisions so as to not drown consumer sentiment and spending momentum.
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