Christopher Rugaber

WASHINGTON (AP) – The Federal Reserve’s inflation rate, which is closely monitored by the Federal Reserve, rose 6.6% in March from a year ago, the highest 12-month jump in four decades and further evidence that price spikes are pushing home budgets and the health of the economy.

However, a Friday report from the Commerce Department had signs that inflation may be slowing from its galloping pace and possibly approaching a peak, at least for now.

Excluding particularly volatile food and energy categories, so-called basic prices rose 5.2% in March from a year earlier. This was slightly lower than in February by 5.3% over the same period last year, and it was the first time in 12 months it had fallen since February 2021, before the inflation spike began. And monthly, basic prices rose 0.3% from February to March, the same as from January to February.

Friday’s report also showed that consumers increased their spending by 1.1% last month, more than many economists had expected, and this is a sign that inflation has not yet forced Americans to abandon shopping altogether. The increase largely reflects rising prices at gas stations, grocery stores and other places where Americans buy essentials. But even adjusted for inflation, spending rose 0.2%.

A sharp increase in wages allows many consumers to at least stay close to inflation. A separate report from the Labor Department on Friday showed that wages and workers ’wages jumped 1.4% in the first three months of the year, before adjusting for inflation. It was the highest growth in two decades.

High inflation and a sharp rise in wages are forcing the Federal Reserve to plan a series of sharp interest rate hikes in the coming months. Next week, the Fed is set to raise its benchmark short-term rate by half a point, faster than its typical quarter-point increase and the first such significant increase since 2000.

Outside the United States, inflation is also rising, forcing other central banks to either raise interest rates or get closer to it. In 19 countries using the euro, inflation reached a record 7.5% in April compared to last year.

In Europe, rising energy prices as a result of Russia’s invasion of Ukraine play a greater role in boosting inflation. The European Central Bank may have to raise rates later this year, even as growth in the region has slowed due to the war.

At the same time, wages are growing at a healthy pace, helping consumers keep up with some jump in inflation. Employers are raising wages because many are desperate to find and retain workers. Vacancies are close to a record high, and the unemployment rate of 3.6% is just above the half-century low reached just before the pandemic.

However, inflation remains chronically high, and as a result, Americans are increasingly negative about the economy. About a third of respondents to a Gallup poll released Thursday cited inflation as the most important financial problem their family faces today, compared to less than one in 10 who said so a year ago.

The gloom that has gripped public opinion as inflation has accelerated poses a growing political threat to President Joe Biden and Democrats running for Congress. Biden pointed to a strong job market and substantial consumer spending as proof that his policies have helped Americans. But on Thursday, that view absorbed failure when the government reported that the economy had actually shrunk in the first three months of this year by 1.4% per annum.

Despite this, consumers and businesses increased their spending at a steady pace in the January-March quarter, even after adjusting for inflation, suggesting that the economy is healthier than expected on Thursday’s gross domestic product.

How consumers react to inflated prices – and much higher interest rates from the Federal Reserve – is one of the unknowns the economy is facing this year. Moody’s Analytics estimates the average family spends $ 327 more each month to buy the same things they bought a year ago.

In addition to raising wages, some economists believe the increased savings that many Americans have made through incentive checks and other government assistance during the end of the pandemic could help sustain consumer spending in the coming months.

Economists have estimated that Americans have about $ 2.1 trillion in savings more than before COVID, with some of that money in bank accounts of low-income Americans. Bank of America economists note that according to the bank’s current and savings accounts, Americans earning less than $ 50,000 a year had an average of about $ 3,000 in their accounts in February, about twice the pre-pandemic level.

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