STEVE INSKEEP, HOST:
Consumer prices jumped sharply last month as more of the economy reopened and businesses struggled to keep pace with more consumers ready to spend. The Labor Department says prices jumped six-tenths of 1% in March, which is a lot for a month, the biggest increase in almost nine years, in fact. Inflation worries have concerned people in the financial markets in recent months. But both the Biden administration and the Federal Reserve say this is just not that big a deal in the long term. Let's talk it through with NPR's Scott Horsley.
Scott, good morning.
SCOTT HORSLEY, BYLINE: Good morning, Steve.
INSKEEP: Which products or items are getting more expensive?
HORSLEY: The March price hikes were pretty broad-based. We saw higher prices for recreation and personal care. You know, as more people are getting vaccinated, there's more demand for outdoor gear, more people getting haircuts maybe. In some cases, that extra demand's going to drive up the price. For some reason, the price of musical instruments was up rather sharply last month.
HORSLEY: I don't know if that's celebratory trumpets, perhaps. But...
HORSLEY: ...The biggest factor in March, though, was higher energy prices, especially gasoline. Anybody who's filled up recently knows gas prices have been climbing. They were up 9% last month alone, up 22% over the last year.
Keep in mind, though, Steve, a lot of prices fell sharply a year ago, when the pandemic first took hold in the U.S. So some of this recent increase is just payback for that. If you exclude volatile food and energy prices, inflation was just three-tenths of a percent last month and 1.6% over the last year. Of course, most families don't get to exclude food and energy costs from their household budgets.
INSKEEP: No. My mom was telling me on the phone she finally went for the first time in months and put gas in the car. She hasn't been driving much because of the pandemic. And she was shocked at the price of gas in Indiana. But the Fed, as we mentioned, is saying, don't worry; this is temporary. What are they talking about?
HORSLEY: Yeah. A lot of the factors driving these price hikes are unique to the pandemic and the recovery from the pandemic, and so they're not expected to be repeated. You know, people have saved a lot of money over the last year when they weren't eating out as much or going to concerts. Last month, the government sent out those $1,400 relief payments to most Americans, so people have a lot of money to spend right now. And as the economy opens up, there's a lot of potential demand that's being released.
At the same time, you have businesses that are not yet fully staffed up. You have a lot of factories that are facing challenges getting the raw materials they need. We've seen shortages of lumber and steel and, famously, computer chips for cars. So that combination of rising demand and limited supply is a recipe for rising prices. Over time, though, officials say, that should even out. The supply bottlenecks should ease. Restaurants will expand their hours, maybe add extra shifts. There's also, you know, global suppliers that will step up, and inflation should settle back down. At least that's the theory.
Now, we should say not everybody shares this sanguine view. There are those who are warning of more persistent inflation. But the Federal Reserve, which is the principal inflation watchdog in this country, expects price increases to run a little higher than 2% this year, but then be closer to its 2% target next year. So they're not really worried about an inflationary spiral with prices going up year after year after year.
INSKEEP: Just to know - what if they're wrong?
HORSLEY: If we are surprised by an inflationary spiral, the Fed says it has its tools to put the brakes on prices. Typically, it would do that by raising interest rates. But of course, that comes at a cost of slower job growth. And the Fed is really determined to get back to full employment. So the central bank has basically said it's not going to raise interest rates at the first hint of inflation. Instead, it's going to wait till officials see evidence that prices are running above 2% and expected to stay there. Remember, for a long time, the Fed's been worried about inflation that's too low rather than prices that are too high. So for now, at least, the central bank is going to sit tight and keep its powder dry.
INSKEEP: Scott, thanks.
HORSLEY: You're welcome.
INSKEEP: That's NPR's Scott Horsley. Transcript provided by NPR, Copyright NPR.