Inflation continued to climb in March, as prices for consumer goods rose 8.5%, according to the Labor Department – the biggest year-over-year increase since February 1981.
The consumer price index (CPI), which measures the cost of various goods and services, rose 1.2% last month, after rising 0.8% in February. Gasoline, food and housing are the main drivers of rising inflation.
As expected, the price of gas jumped with Russia’s invasion of Ukraine, rising 18.3% after rising 6.6% in February. That’s perhaps unsurprising to most drivers, as the price of a gallon of gas soared to $4.33 in March, nearly double what it cost in January 2021, according to AAA data.
The cost of housing has now risen by 5% as housing shortages have driven up prices in both the property and rental markets.
The cost of food keeps rising
While the cost of gasoline and housing is a concern, staple food prices also continue to climb steadily. The food price index climbed 1% last month, for a total year-over-year increase of 8.8%. Over the past six months, food prices have risen by a monthly average of around 0.8%.
Notably, food prepared at home now costs 10% more than a year ago, making it harder for consumers to save money by eating out less. By comparison, the average year-over-year cost of takeout and restaurant meals climbed 6.9%.
Indeed, the cost of essential foodstuffs needed to prepare meals continues to rise due to supply chain issues, disrupted harvests and labor costs. These items have jumped in price at the following rates over the past year:
- Flours and prepared flour mixtures: 14.2%
- Butter and margarine: 14%
- Meat, poultry and fish: 13.8%
- Milk: 13.3%
- Eggs: 11.2%
- Fresh fruits: 10.1%
- Bread: 7.1%
- Fresh vegetables: 5.9%
Grocers have been more aggressive in raising prices compared to restaurants, says Matt Dmytryszyn, chief investment officer at financial advisory firm Telemus. “Restaurants tend to reset menu prices periodically and we expect further price increases in the near future,” he says.
“At the end of the day, we expect prices to be more balanced between in-home and out-of-home food.”
When will inflation stabilize?
No one knows for sure when inflation will slow, but a silver lining from Tuesday’s CPI report is that the index for all items less food and energy rose 0.3% in March, after an increase of 0.5% the previous month. This means that the costs of most items continue to rise, but may be leveling off.
To fight inflation, the Federal Reserve is expected to continue raising interest rates after introducing a 0.25% increase in March, its first since 2018.
By doing so, the central bank increases the cost of borrowing money, which discourages spending and, in turn, tends to reduce inflation.
A more aggressive interest rate hike is possible at the next U.S. central bank policy meeting in early May, Chicago Federal Reserve Chairman Charles Evans said Monday.
A 0.50% rate hike “is obviously worth considering, maybe it’s very likely,” Evans said.
Register now: Be smarter about your money and your career with our weekly newsletter
Don’t miss: Here is an item-by-item overview of the price of your groceries due to inflation