Consumer prices increased in March as gas prices continued to skyrocket.

The Consumer Price Index increased 0.6% in March, the Bureau of Labor Statistics said Tuesday. The gasoline index rose 9.1% following a surge in February. The CPI increase in March is the largest jump in nearly nine years. 

Core inflation, which does not include food and energy prices, rose to 0.3% in March. Economists predicted a 2.5% year-over-year increase while closely monitoring the scale of rebounding prices. 

“The biggest takeaway is at this point, we can see it as a bit of a rebound after three weak months,” said David Sloan, senior economist at Continuum Economics in London. “At the moment, though, the trend is still subdued. We need a lot of months like this to really make up for the weakness that we’ve seen over the past year.”

Experts say that while a full-scale recovery is on the horizon, they’re hopeful that inflation will remain manageable.

Economists predict prices will continue to increase but say inflation fears remain transitory. Others point to 2008 as a cautionary tale, when inflation spiked while the economy picked up steam only to decline to a period of small gains in the ensuing months. 

CPI for Gasoline Prices U.S. City Average March 2020 – March 2021

Consumer Prices for Gasoline Percent Change

Gas prices are closing in on pre-pandemic highs

Inflation jumped 2.6% in March in a significant increase over the Federal Reserve’s 2% target. Experts say that President Biden’s $1.9 trillion stimulus plan is still hitting bank accounts and its full effects aren’t clear while the money works its way through the economy.

“It’s important to separate transitory factors – higher energy prices, the re-opening of the economy – versus the fundamentals for inflation,” said Ryan Sweet, head of monetary policy research at Moody’s Analytics. “The fundamentals suggest we’re not [going to] get a sustained period of above-target inflation anytime soon.”

Some consumers have yet to see full-blown price rises across the board. Bob Adolph, a semi-retired engineer and consultant based in New Jersey, says he thinks allowing inflation to pass 2% is no cause for concern because it’s easy for the Federal Reserve to adjust rates. 

“I think inflation fears are overblown,” Adolph said. “One year comparisons have a huge ‘bias’ due to the lockdowns, etc a year ago. [I] prefer annualized comparison[s] to two years ago.”

Transportation services ticked up 1.8% in March and airline fares are up 0.4% following a steep dip in February. Increases in other sectors like lodging away from home to hotels and motels gives further merit to an increased consumer comfort to spend. 

But access to cash isn’t the issue. Supply chains remain greatly damaged and threaten to verify inflation fears. Manufacturers continue to struggle to meet the renewed demand which is already raising prices. Manufacturers are paying more to produce everyday items like diapers and dry-storage goods which will be passed along to consumers, or leave them empty-handed. 

A shortage of semiconductors remains a question for consumers when shopping for new cars and trucks. Car insurance increased 3.3% in March from February in a showing of strong demand. The new vehicle index remained flat in March, signaling that car makers are not yet panicking. 

Restaurants are slowly bouncing back but are facing a growing hiring problem. Steady monthly increases from January in the food away from home index show consumers are growing more comfortable dining out even as restaurants are raising prices. The food away from home index rose 0.1% while the full-service meal index climbed 0.2%. Overall food prices increased 0.1% in March. 

“I would say this is the first month where we’re seeing upward pressure on prices from the economic reopening,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC. “The categories that were up were ones that were most likely to be [damaged] by the pandemic [and] we’ve seen prices fall over the past year.”

Stanley says prices will stabilize for consumers in time. Stability depends on a consumer trust of U.S. monetary policy, he says, and being willing to adapt to a changing economy that tolerates more cash on hand and fluctuating prices. 

 “A lot of what we’re going to see over the next few months is really a normalization,” Stanley said. “there’s no way to know whether it’s going to take hold or not. Do people come to accept higher inflation [or] does the extraordinary fiscal and monetary stimulus in the system create a dynamic where there’s too much money chasing too few goods and services?”

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