Fed’s Preferred Inflation Gauge Climbs 6.6% From a Year Earlier

on Apr29
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Demand has remained strong and supply chain disruptions have continued into 2022, making the central bank’s task ahead all the more difficult. The Fed has in the past caused recessions while trying to weigh down high inflation. Now, officials are constraining the economy just as the war in Ukraine ramps up uncertainty and threatens to keep prices for gas and other commodities elevated.

“It will be another extremely long and challenging year,” Diane Swonk, chief economist at Grant Thornton, wrote in a research note Friday after inflation and wage releases. “Buckle up.”

The outlook for inflation in the months ahead is wildly uncertain. On one hand, the Fed’s pivot on interest rates has pushed mortgage rates sharply higher, which may start to weigh down the housing market and cool off related types of demand. Already, some companies — like the washing-machine maker Whirlpool — are seeing consumer demand wane compared with last year, though it is elevated relative to its prepandemic levels.

But costs for key inputs continue to climb, and that may remain the case amid the war in Ukraine and as China locks down key cities to contain the coronavirus. At Whirlpool, higher input prices are prompting the company to charge consumers more.

“Historic levels of inflation, notably in raw materials, energy and logistics, will impact us throughout the year,” James W. Peters, the company’s chief financial officer, said Tuesday during a conference call. “However, our previously announced pricing actions are on track and position us to fully offset cost inflation as we exit the year.”

Many products were already struggling to return to normal inventory levels before Russia invaded Ukraine and roiled commodity markets. Cars and trucks, for instance, remained in short supply thanks to shortages of key parts — most critically, semiconductors. Executives at Ford said this week that the company had 53,000 vehicles built but that they were awaiting chips to complete them.

“Customers’ demand is extremely strong,” Jim Farley, the chief executive officer at Ford, said in an April 27 earnings call. “However, we are still grappling with persistent supply chain issues that prevent us from posting an even stronger quarter.”

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