Inflation goes even higher in March, and now has caught up to earlier wage gains

Given how gasoline prices and other costs jumped in March, you figured that today’s inflation report would show another sizable increase for this month’s report. And indeed it did.

The Bureau of Labor Statistics' (BLS) Consumer Price Index (CPI) rose 8.5% in March compared to the same month last year, according to the latest report released Tuesday. That marked the fastest rise since December 1981. This followed a 7.9% annual increase in February. Heading into the report, consensus economists were looking for an 8.4% jump for March, according to Bloomberg data.

On a month-over-month basis, prices rose 1.2% in March following a 0.8% monthly rise in February.

Some of the biggest contributors to the latest increase in inflation were food, shelter and gasoline, according to the BLS. In fact, the index tracking gas prices surged to rise 18.3% month-on-month in March, comprising more than half of the total monthly increase in CPI. In February, gasoline had posted a 6.6% monthly increase.

But even excluding more volatile food and energy prices, the CPI also posted a marked move higher in March. The core CPI jumped 6.5% in March over last year, accelerating from a 6.4% increase in February and representing the fastest increase since August 1982.

While gas prices have dropped since then, food prices have not, so it remains to be seen if that year-over-year total number is at a peak at 8.5%.

While the 12-month core CPI increase is also the highest since the Harvey’s Wallbangers era, President Obama's top economic advisor notes that the core increase in March was relatively tame, and the lowest in 6 months.

The headline in 8.5% overall inflation over the last year. But much better to look at monthly (it's the new information) and core (which excludes volatile food and energy). That was 0.3%, the lowest since September. But that's still a 4.0% annual rate. pic.twitter.com/oXf6ueHJ2t

— Jason Furman (@jasonfurman) April 12, 2022

The handoff from goods to services inflation continues. In February core services inflation was higher than durable goods inflation for the first time in nearly a year. In March services inflation edged up but only a little and we saw goods deflation. Good if it continues. pic.twitter.com/hAzJ1VaTjB

— Jason Furman (@jasonfurman) April 12, 2022

The drop in car prices may be a good sign that the alleged supply crunch for vehicles (as well as other goods) may be ebbing. That doesn’t do much for the everyday expenses for a lot of people, but we can hope it’s a sign that other supply-related expenses will be leveling off in the near future.

But the price hikes through March 2022 still happened, and they’ve been outpacing the increases in wages that have been going on over the last year. March was the worst gap so far, as shown by the real wages report that goes along with the CPI report.

Real average hourly earnings for all employees decreased 0.8 percent from February to March, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This result stems from an increase of 0.4 percent in average hourly earnings combined with an increase of 1.2 percent in the Consumer Price Index for All Urban Consumers (CPI-U).

Real average weekly earnings decreased 1.1 percent over the month due to the change in real average hourly earnings combined with a decrease of 0.3 percent in the average workweek.

Real average hourly earnings for production and nonsupervisory employees decreased 0.9 percent from February to March, seasonally adjusted. This result stems from a 0.4-percent increase in average hourly earnings combined with an increase of 1.4 percent in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

Real average weekly earnings decreased 1.2 percent over the month due to the change in real average hourly earnings being combined with a decrease of 0.3 percent in average weekly hours.

Inflation has consistently outpaced average hourly wages over the last year, although less so for line workers as opposed to everyone else.

But don’t forget that in the first year of the COVID world, real wages had a big jump, and while it’s not a good thing to see them go down now, real hourly wages are still above where they were 2 years ago.

Since Feb 2020 (pre-pandemic, so 25 months) real wages are up +0.01% percent annual rate. (This is biased upward by a few tenths because lower-wage workers have left the data.) This is not nearly as historic an aberration as the last 12 months have been but nothing to brag about. pic.twitter.com/1MqSSzMNp3

— Jason Furman (@jasonfurman) April 12, 2022

I also find it intriguing that average hours worked by everyday employees are at multi-year highs, even as service jobs have come back in big numbers as Americans have gotten vaccinated and health-related restrictions have been lifted.

And that could well hold, as US unemployment is under 4% and participation rates keep holding, so it'll be hard to add part-timers and/or reduce hours of current employers.

But the declines in real wages and income (due to no checks going out for the child tax credit or other stimulus) is something to be concerned about. As of now, it hasn't stopped Americans from spending, but at some point, either the price hikes stop, or consumers stop spending so much and the economy slows down. And that's when we move into the next phase of where this economy is going.