Almost all Americans are about to go through a period of high prices that will last for a long time and be very frustrating.
Consumer prices in the United States rose 7.9% from a year earlier in February, the government said yesterday. In line with what we thought, but still another 40-year high. From January to February, almost every type of consumer good you can think of got more expensive. This includes everything from rent to airfares.
When you look into the future, prices could only go up because of the war in Ukraine.
That’s because war and inflation have always been linked together. WSJ’s Greg Ip said that war has been a “reliable precursor to inflation.” This is because wars can cut a country’s production capacity, disrupt supply chains, and raise government spending.
The US isn’t affected by all of these things in this case. Some of them are. Russian invasion of Ukraine and Western sanctions on Russia have made supply shortages even worse. They were just starting to get better after the Covid shock, but now they’re even worse.
Average gas prices hit a record high of $4.32 per gallon yesterday because the price of oil went up. A 62-cent rise from the start of the war on Feb. 24.
Prices for many different commodities, from wheat to nickel, have risen to all-time highs because supplies from Russia and Ukraine have dried up on the world market. Buying wheat or nickel isn’t something you do right now, but the prices of those things will eventually rise.
Looking at the next few years…
While economists had hoped that inflation would be at its peak right now, the conflict in Ukraine means it’s “pretty much a mathematical certainty” that prices will only go up from here. Next week, the Fed is almost certain to raise interest rates in order to keep inflation from getting even worse.