Inflation May Jump Most in Four Years  04/10 06:04

   Soaring gas prices are expected to produce a spike in inflation when the 
government reports consumer prices for March on Friday, likely unnerving the 
inflation fighters at the Federal Reserve and heightening the political 
challenges of rising costs for the White House.

   WASHINGTON (AP) -- Soaring gas prices are expected to produce a spike in 
inflation when the government reports consumer prices for March on Friday, 
likely unnerving the inflation fighters at the Federal Reserve and heightening 
the political challenges of rising costs for the White House.

   Inflation probably rose to 3.4% in March compared with a year ago, 
economists estimate, which would be a sharp increase from February's 2.4% 
increase. On a monthly basis, prices are forecast to have risen 0.9% in March 
from the previous month, according to a survey of economists by data provider 
FactSet. That would be largest monthly increase since 2022.

   Until now there had been a slight moderating trend in inflation since last 
fall. A reading of 3.4% would be the highest in nearly two years, and is far 
above the Fed's 2% target.

   "There is going to be a headline sticker shock here," said Michael Metcalfe, 
head of macro strategy at State Street, which produces PriceStats, a measure of 
inflation culled from millions of online prices. Their data suggests inflation 
could leap by 1.5% just in March from February.

   Excluding the volatile food and energy categories, core prices are projected 
to have risen 2.7% in March from a year earlier, up from 2.5% in February. From 
February to March, core prices are expected to have risen 0.3%, a faster pace 
than is consistent with the Fed's target.

   Gas prices soared 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 run, 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 
potentially cut back elsewhere.

   Gas prices averaged $4.17 a gallon nationwide Thursday, up 69 cents from a 
month ago.

   The big question for consumers and the economy is whether the surge in oil 
and gas prices will create a sustained, broader inflation shock, similar to 
what occurred in the aftermath of the pandemic in 2021-2022. Inflation reached 
a peak of 9.1% in June 2022, as COVID-19 snarled supply chains and several 
rounds of stimulus checks pushed up consumer demand. Prices soared for 
groceries, furniture, restaurant meals and many other goods and services.

   This time, economists say the job market and consumer spending are weaker, 
and there are no large government stimulus checks being issued to spur demand. 
The unemployment rate is low, at 4.3%, but companies aren't scrambling to hire 
the way they were when the economy emerged from the pandemic, which led many 
firms to offer sharp pay increases to attract and keep workers.

   Rapid pay increases and solid income growth helped consumers weather the 
higher prices that resulted from the pandemic's supply chain disruptions, and 
fueled spikes in demand that led many companies to raise prices further.

   "That's where this really differs, is that we aren't seeing anywhere near 
the strength of demand," Alan Detmeister, an economist at UBS, said. In 2021 
and 2022, income growth "was increasing really strongly. We aren't seeing that 
now," he added.

   Detmeister thinks the better comparison will likely be to 1990-91, when 
higher oil and gas prices stemming from Iraq's invasion of Kuwait contributed 
to a recession, but didn't lead to a jump in inflation, in part because of 
weaker consumer spending.

   The gas price spike's impact on inflation is, in some ways, similar to 
President Donald Trump's tariffs, in that their effect will depend largely on 
the size and duration of the increase.

   For now, economists expect that in March and April the impact will largely 
be confined to energy-intensive industries, such as airlines, package delivery 
services and public transportation. Overall, the U.S. economy is much less 
dependent on oil and gas than it was in previous decades.

   Still, the large jump in inflation -- which is almost certain to continue 
for several months -- has already shifted the debate at the Federal Reserve, 
which began the year expecting to cut its key interest rate at least a couple 
of times. But a growing number of Fed officials are now willing to consider 
hiking rates instead if core inflation doesn't cool noticeably.

   Most officials are almost certain to support keeping the Fed's key interest 
rate unchanged in the coming months, at about 3.6%, as they evaluate how the 
economy evolves. Investors now don't expect the Fed to cut rates until late 
2027.

   Higher gas prices are tricky for the Fed because they can also slow growth 
by weighing on consumer spending, potentially causing layoffs. The Fed would 
typically cut its rate to encourage more spending if unemployment rises, while 
it raises rates to combat inflation.

   More expensive oil and gas will also likely lift grocery prices, creating 
more pain for consumers who have already absorbed a roughly 25% jump in food 
costs since the pandemic. Nearly all groceries are shipped by diesel-fueled 
trucks, and diesel fuel prices have risen even more than those for regular gas. 
Still, analysts don't expect food prices to accelerate for another month or two.