Russia’s invasion of Ukraine has dashed any hope US consumers might have had for relief from sky-rocketing inflation, with gasoline prices in the last week surging by the most in nearly 17 years and costs of other goods like food ready to march higher as well.
Even before the invasion, the US inflation report for February was set to show prices rising at their fastest pace in 40 years. The data, due to be released on Thursday, will likely show only a preliminary impact from the swelling in US oil prices, which briefly climbed above $130 a barrel on Monday, but the spike is expected to drive overall inflation higher in coming months.
“There had been expectations that February would be the high point for year-over-year headline inflation, but the Ukraine shock is already sending gas prices higher in March,” said Tim Duy, an economist at SGH Macro Advisors.
The development also comes at a perilous time for the Biden administration, already under fire for soaring costs for rents, electricity and food as the economy grapples with the impact of the COVID-19 pandemic, in which demand has outstripped supply.
Federal Reserve policymakers will also be keenly watching the reading, which will arrive just under a week before they gather for their next policy meeting. The US central bank is widely expected to raise its benchmark overnight interest rate by a quarter of a percentage point on March 16 as it begins a tightening cycle meant to bring down inflation without derailing the economic expansion.
Fed Chair Jerome Powell said last week that the central bank will act cautiously given the uncertainty of the impact of the war in Ukraine, but persistently high inflation will weigh as policymakers sketch out their forecasts at their meeting for the path of rate hikes in the months ahead.
Economists polled by Reuters forecast the Consumer Price Index to have climbed 7.9 percent on a year-on-year basis in February, up from 7.5 percent in January. The monthly rate is forecast to have risen 0.8 percent after increasing 0.6 percent in the prior month.
Gasoline prices increased nearly 6 percent in February, which would add around 0.2 percentage point to the headline number last month, but the bigger effects are still to come.
