The Consumer Price Index (CPI) rose to 7.9 percent year-over-year in January, vs. an increase of 7.5 percent year-over-year in January. This key measure of consumer price inflation is now at the highest rate recorded since January 1982. Core CPI, which excludes volatile food and energy prices, rose by 6.4 percent year-over-year, vs. 6.0 percent in January.

On a month-over-month basis, February CPI rose 0.8 percent, vs. 0.6 percent January. Meanwhile, February Core CPI rose 0.5 percent, vs. 0.6 percent in January. This divergence in increases shows that food and energy prices are becoming key drivers of inflation. Indeed, according to the BLS, increases in gasoline, shelter and food prices were the largest contributors to inflation in February. Gasoline prices rose by 6.6 percent from the previous month and accounted for nearly a third of the increase in the monthly CPI. Meanwhile, food prices rose 1.0 percent from the previous month – the largest monthly increase since the initial COVID-19 lockdown in April 2020.

These February data do not fully incorporate the disruptions to global energy and agricultural commodities associated with Russia’s invasion of Ukraine. Following the start of the war on February 24, prices for crude oil, grains and various metals have skyrocketed on concerns about shortages. As the conflict continues these prices will likely continue to rise. With pandemic-induced disruptions moderating we had expected to see inflationary pressures moderate as we approached the Spring, but this conflict changes that view.

We now expect price increases to intensify, especially in food and energy, and to see inflation rates rise until at least this summer. Our forecast for PCE inflation, which is similar to CPI, rises from a reported 5.5 percent year-over-year in Q4 2021 to a high of 6.6 percent in Q2 2022 and then falls to 4.2 percent in Q4 2022. We project that Core PCE inflation, which is similar to Core CPI, rises from a reported 4.6 percent year-over-year in Q4 2021 to a high of 5.9 percent in Q2 2022 and then falls to 4.4 percent in Q4 2022.

For more information about the economic disruptions associated with the Ukraine Crisis please see our March US forecast statement and the Conference Board’s new Geopolitics hub.