A Key Inflation Gauge Is Still Rising, and War Could Make It Worse

A measure of inflation closely watched by the Federal Reserve is expected to show that prices continued to rise in January, accelerating on a monthly basis and increasing from a year earlier at the fastest pace since 1982.

Economists expect that the Personal Consumption Expenditures index, which the Fed targets as it aims for 2 percent annual inflation on average over time, rose 6 percent from the previous January. Prices probably climbed 0.6 percent from December, up from 0.4 percent the prior month, based on the central estimate in a Bloomberg survey.

The Commerce Department will release the data at 8:30 a.m. on Friday.

High inflation remains stubborn at a tense moment. With consumers already struggling with rising costs, Russia’s invasion of Ukraine this week promises to push inflation even higher as prices for oil and other commodities increase.

The Fed has been preparing to steadily pull back its pandemic-era economic support in an effort to cool off consumer demand and tame prices. The White House is monitoring inflation closely as rising prices for food, rent and gas shake consumer confidence and dent President Biden’s approval ratings ahead of midterm elections in November.

The fresh inflation reading won’t surprise economists or policymakers — the Personal Consumption Expenditures number is fairly predictable because it is based on Consumer Price Index figures that come out more quickly, along with other already available data. But it will reaffirm that price increases, which were expected to prove temporary as the pandemic economy reopened, have instead lasted almost an entire year and seeped into areas not affected by the coronavirus.

Price increases have hit a wide array of products and services, including used cars, beef, chicken, restaurant meals and home furnishings, and several trends risk keeping inflation elevated. Notably, wages are rising rapidly, and employers are finding that they can pass their climbing labor costs along to shoppers.

Economists are also warily eyeing the conflict in Ukraine, which has already caused oil and gas prices to rise and is likely to push commodity costs higher still.

Researchers at Goldman Sachs estimate that an increase of $10 per barrel of oil would increase headline inflation in the United States by a fifth of a percentage point while lowering economic output by just under a tenth of a percentage point.

Brent crude oil, the global benchmark, rose as much as 6 percent to more than $100 per barrel after Russia invaded Ukraine and could climb further as Russia reacts to sanctions from the United States and Europe. Russia is a major exporter of energy to Europe.

“Potentially, Russia could retaliate by limiting oil exports,” Patrick De Haan, head of petroleum analysis at GasBuddy, said on Thursday. Prices at the pump are likely to reflect repercussions from the conflict almost immediately, he said.

Some economists have noted an uncomfortable precedent when it comes to a gas shock.

Rising energy prices in the 1970s helped exacerbate inflation, causing rapid price increases to become a lasting feature of the economy, one that faded only after a painful response from the Fed. The central bank pushed interest rates — and unemployment — to double digits to bring price increases to heel during what is now known as the “Great Inflation.”

That episode happened after years of quick price increases that the Fed had proved slow to tamp down. This time, the central bank is gearing up to pull back support promptly.

The Fed is expected to initiate a series of rate increases in March, policy moves that should slow down lending and spending, which could translate into weaker hiring, more subdued economic growth and more modest price gains.

“The Ukrainian situation does not alter, likely, the fundamental conclusion that it’s time to change monetary policy,” said Julia Coronado, founder of MacroPolicy Perspectives. “They’re not going to just shelve all the interest rate increases because there is a war in Ukraine.”

While the Fed has primary responsibility for controlling inflation by guiding economic demand, the White House is trying to roll out policies to help supply catch up with demand, and has pledged to try to do what it can to keep oil and gas prices from rising to untenable levels during the Russian conflict.

“I know this is hard and that Americans are already hurting,” Mr. Biden said during an address on Thursday. “I will do everything in my power to limit the pain the American people are feeling at the gas pump. This is critical to me. But this aggression cannot go unanswered.”