Annual inflation climbed to a new four-decade high in February, reaching alarming levels even before Russian troops moved into Ukraine, driving energy prices up sharply.
The Labor Department said Thursday that consumer prices in February were up 7.9% from a year earlier. Prices rose 0.8% between January and February - faster than a month earlier.
The annual inflation rate for February is the highest since January of 1982. That doesn't fully reflect the recent rise in gasoline prices, which climbed to an all-time high of $4.31 a gallon on Thursday after Russia's invasion of Ukraine.
Prices have been spiking for months, putting pressure on consumers' pocketbooks and increasing pressure on the Federal Reserve to do so.
"We're good at maximizing the minutes we have, but we're feeling like a breaking point," says Cami Bencomo, who runs a coffee delivery business with her husband in Las Cruces, N., M.
"By the time I asked him to get gas, the price had gone up," Bencomo says.
According to AAA, gasoline prices have increased by 59 cents a gallon in the past week. Diesel prices have jumped even more sharply, to about $5.06 a gallon.
"There's no sense of how far the prices are going to go," Bencomo says. "We can stay at home for a lot of stuff, but we must have gas to deliver coffee. We must have gas to get food."
Salaries don't grow as much as they used to
The rise in food and fuel prices has been one of the major drivers of inflation in the past year.
Gasoline prices accounted for about a third of monthly price increases in February, following a drop in gas prices months earlier during the Omicron wave of the pandemic. Grocery prices increased by 1.4% last month and 8.6% over the previous year.
Kim Gonzalez, a medical assistant in Livingston, Mont., says her pay isn't as high as it used to be.
As grocery prices went up, he began substituting generic cereal for Honey Bunch of Oats of his choice. But there is no substitute for expensive petrol. And Gonzalez's 1999 Toyota Tacoma pickup has only 16 miles to the gallon.
"It's helpful to have a four-wheel drive vehicle here because we get snow," says Gonzalez. "Those types of vehicles aren't always the most fuel-efficient."
The Fed faces a tricky balance on the economy
The Fed has already telegraphed its plan to start raising interest rates when policymakers gather next week.
But the war in Ukraine adds a new layer of uncertainty. Inflation is likely to rise further in the coming months due to rising petrol prices. But they can leave consumers with less money to spend elsewhere, slowing economic growth.
"Right now, we need to move away from very low interest rates," Fed Chair Jerome Powell told a Senate committee last week. "The economy is very strong. Unemployment is low. Wages are up. The labor market is quite healthy, and inflation is very high."
The Fed has little margin for error as it tries to contain inflation without pushing the economy into recession.
"Given the current situation, we need to proceed with caution and we will," Powell told a House committee. "We will use our tools to add to financial stability, not create uncertainty."
See every dollar spent
Powell said he expects the initial rate increase to be modest: a quarter of a percent. But he and his colleagues on the rate-setting committee are prepared to take stern action if needed in the coming months.
"Those of us on the committee expect inflation to peak and begin to come down this year," Powell said. "And to the extent that inflation is higher or more consistently higher, then we will be ready to move more aggressively."
Inflation impacts most people on low incomes, who often have to make tough choices about what to do without, even as wealthy Americans continue to spend freely. That spending has prolonged the mismatch between strong demand and limited supply, driving prices up sharply.
Bencomo, who has a two-year-old daughter and another child on the way, says she feels the sting of rising prices, and has to carefully manage her monthly budget.
"If we weren't looking at every dollar the way we are, I'm sure we would be – like many families – flying through it and wondering in the fourth week what are we going to do? How are we going to make this work?"