US inflation expected to have topped 8% in March

US consumer price growth is expected to have surpassed 8 per cent in March following a surge in energy and food prices following Russia’s war on Ukraine, bolstering expectations the Federal Reserve will take more aggressive action to curb the highest inflation in 40 years.

The consumer price index is forecast to have risen 8.4 per cent last month compared with March 2021, a pace last seen in January 1982, according to consensus forecasts compiled by Bloomberg.

The monthly rise is estimated at 1.2 per cent, the fastest jump since September 2005 and a sharp acceleration from the 0.8 per cent rise registered in February.

After volatile items such as food and energy are stripped out, “core” CPI is expected to have advanced 0.5 per cent in March. That is in line with February’s increase, but is set to push up the annual pace to 6.6 per cent.

The data, to be published by the Bureau of Labor Statistics at 8:30am Eastern Time, reflect the immediate aftermath of Russia’s invasion of Ukraine, which has led to whipsawing prices for food and energy.

The Biden administration on Monday blamed the expected surge in prices on the war, with White House press secretary Jen Psaki saying the CPI reading was expected to be “extraordinarily elevated due to Putin’s price hike”.

Psaki noted petrol prices are up on average more than 80 cents a gallon since the invasion, which she said would drive the bulk of the increase.

Inflation expectations have in turn risen, with a new monthly survey released by the New York branch of the Federal Reserve on Monday showing that US households are bracing for much more acute price pressures.

Over the next year, consumers anticipate inflation hitting 6.6. per cent, a 0.6 percentage point rise from the previous period. Expectations for the three-year outlook declined marginally but still remain elevated at 3.7 per cent.

Concerns that inflation will become even more deeply entrenched in the world’s largest economy have prompted the US central bank in recent weeks to assume a more aggressive approach to tightening monetary policy.

The Fed is now poised to raise interest rates by half a percentage point at its next policy meeting in May, double the pace of its March rate rise, as it seeks to lift its benchmark policy rate to a more “neutral” level that neither aids nor constrains growth by the end of the year.

Officials forecast that rate to be 2.4 per cent, implying at least one more half-point adjustment in addition to four more quarter-point rate rises in 2022.

The central bank is also set to begin shrinking its $9tn balance sheet next month, building up to as much as $95bn a month over roughly three months beginning in May.