Inflation set a fresh 40-year high in February, rising 7.9% over the previous 12 months, driven by the evolving pandemic-era backdrop and further fueled by the escalating crisis in Ukraine.
According to Bank of America Economist Aditya Bhave, a key factor is that persistent supply chain disruptions have been unable to keep up with stimulus-fueled demand.
"So first of all, there's supply disruptions," Bhave told Yahoo Finance Live on Thursday (video above). "There you can look at the strength in apparel, in household furnishings, and in supplies pointing to continued pressure on and supply chains."
Food prices also rose 1% and food-at-home jumped 1.4%, both numbers being the fastest monthly gains since April 2020.
Excluding volatile food and energy prices, the so-called core CPI rose 6.4%, the highest since August 1982.
Prices for shelter — which accounts for about one-third of the CPI weighting — picked up in February, as rent prices rose 0.6% month-over-month.
"Then you can look at the strength and demand, which is both cyclical as evidenced by rental inflation," Bhave said. "Again, very strong, as well as reopening driven."
Furthermore, airline fares accelerated to 5.2% — more than doubling from January — shows "another impetus for the economy that it's not just supply issues, but demand is actually very, very strong," he added.
Bhave also pointed to the raging crisis in Europe, adding that this further fuels price pressures as sanctions against Russia after its invasion of Ukraine in late February coincided with surging gasoline costs and food.
Prices at the pump have increased 24% over the past month and 53% in the past year, according to AAA.
Wheat prices, meanwhile, shot up a 14-year high last week, fueled by the ongoing Russia-Ukraine war. The two countries account for nearly 30% of the world's wheat exports.
"We'll have to see what happens with food prices and energy prices, but from what we know in the first several days of this month, clearly there's going to be more upward pressure," Bhave said.
Looking forward, while it's still unclear what March's CPI numbers will look as the war cuts off shipments from a region that accounts for a quarter of the grain’s trade, Bhave noted that there will be "more divergence between headline and core inflation."
In mid-March, the Federal Reserve is expected to begin raising rates and shrinking its balance sheet to cool off inflation, though the process might not be as straightforward now.
"They're going to have to pay attention to what's happening with non-core price as well because of course, these are the items that are consumed disproportionately by lower income households," Bhave said.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter: @daniromerotv
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