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US inflation surges to new high as consumer prices jump 7.9 per cent

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Inflation is surging in the United States, hitting the highest level in 40 years and pushing up the prices of food and petrol.

Inflation is soaring in the United States, with the Consumer Price Index rising 7.9 per cent — the highest amount in 40 years.

The Labor Department confirmed prices for petrol, food and houses and jumped sharply, up 7.9 per cent in February — compared to the same month last year.

Governor of Florida Ron DeSantis said energy prices were “skyrocketing”, fuelling price increases throughout the economy.

In response, the US Federal Reserve is expected to increase interest rates next week, for the first time since the pandemic began.

But analysts are warning of another shock to come from the sanctions imposed on Russia, a major producer of oil and gas.

“The Russia-Ukraine war adds further fuel to the blazing rate of inflation via higher energy, food and core commodity prices that are turbo charged by a worsening in supply chain problems,” Kathy Bostjancic of Oxford Economics said.

Eric Winograd, senior economist at asset management firm AllianceBernstein said, “The numbers are eye-watering, and there is more to come.”

He warned the peak in inflation would be much higher than previously thought and would arrive later than previously expected.

The inflation spike is a liability for President Joe Biden, whose approval ratings have dived.

Mr Biden blamed Russia’s invasion of Ukraine for pushing inflation even higher.

“A large contributor to inflation this month was an increase in gas and energy prices as markets reacted to [Russian President Vladimir] Putin’s aggressive actions,” the US President wrote on Twitter.

“I know that higher prices impact a family’s budget, which is why I am fighting to bring down the everyday prices that are squeezing Americans.”

In a statement, the US President warned of the impacts of “Putin’s price hike” and acknowledged there would be “costs at home.”

“But Americans can know this: the costs we are imposing on Putin and his cronies are far more devastating than the costs we are facing,” Mr Biden said.

Russia’s invasion of Ukraine began on February 24.

According to the Bureau of Labor Statistics, the price of petrol rose by 38 per cent over the previous 12 months.

Most analysts predict inflation will worsen after Mr Biden announced a ban on imports of Russian oil, natural gas, and coal Tuesday in response to Russia’s invasion of Ukraine.

“The commodity price shock from the war in Ukraine – if it persists — is likely to push price metrics even higher,” Ms Bostjancic said.

In November last year, US inflation jumped 6.2 per cent. At the time the White House insisted inflation would be “transitory”. Press secretary Jen Psaki today said analysts expected inflation would slow at the end of the year.

Petrol price soars in Australia

Meanwhile in Australia, the price of unleaded petrol has soared above $2.20 in Sydney. In the Northern Territory motorists are paying $3 a litre at the bowser.

The Australian reports the rising petrol price will cost Aussies about $12 billion.

Treasurer Josh Frydenberg is so far noncommittal about a proposal from independent senator Rex Patrick to temporarily reduce the 44.2c-a-litre fuel excise.

Reserve Bank of Australia governor Philip Lowe warned on Wednesday that supply chain issues could trigger a wave of inflation in Australia.

“The war in Ukraine and the sanctions against Russia have created a new supply shock that is pushing prices up, especially for commodities,” Dr Lowe said at the AFR business summit.

“This new supply shock will extend the period of inflation being above central banks’ targets.”

Australia’s official cash rate has been at 0.1 per cent since November 2020. It is expected rise by 1 per cent by the end of this year and reach 1.25 per cent by next year.

Multiple US interest rate rises expected

Top US officials have made it clear that interest rates will be hiked from zero next week, ending the easy money policies put in place as the pandemic began, which have been blamed for the price surge.

Ms Bostjancic predicted the US Federal Reserve would raise rates repeatedly this year, but warned “the heightened uncertainty and current shock to financial markets from the Ukraine war” will make the central bank proceed cautiously.

– with AFP and Alex Turner-Cohen

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