U.S. consumer prices rose in March by the most since late 1981, underscoring the painfully high cost of living and reinforcing pressure on the Federal Reserve to raise interest rates even more aggressively.
The consumer price index increased 8.5% from a year earlier following a 7.9% annual gain in February, Labor Department data showed Tuesday. The widely followed inflation gauge rose 1.2% from a month earlier, the biggest gain since 2005.
Gasoline costs drove half of the monthly increase, while food was also a sizable contributor, as Americans paid more for vegetables, meats and dairy products.
Excluding volatile food and energy components, so-called core prices increased 0.3% from a month earlier and 6.5% from a year ago, due in large part to the biggest drop in used vehicle prices since 1969 and a deceleration in price growth in other merchandise categories.
Treasuries rose and the dollar erased an earlier advance to weaken after the data showed core inflation rose less than forecast. The S&P 500 index opened higher.
Used car prices, which had been a driver of higher goods inflation for months, were down 3.8% in March, the second straight monthly decline. New car prices, meanwhile, rose slightly.
The figures are “a welcome respite from the sustained heated core increases of late, and fuel costs look to ease in response to the recent pullback in oil prices,” Sal Guatieri, senior economist at BMO Capital Markets, said in a note.
“However, food, rent, and a few other items look to remain troublesome and act to slow the expected retreat in inflation in the year ahead.”
The March CPI reading represents what many economists expect to be the peak of the current inflationary period, capturing the impact of soaring food and energy prices after Russia’s invasion of Ukraine.
While the Fed has opened the door for a half-percentage point increase in interest rates, inflation isn’t likely to recede to the central bank’s 2% goal anytime soon -- especially given the war, Covid-19 lockdowns in China and greater demand for services like travel.
President Joe Biden has come under fire for failing to rein in prices as Americans pay up for fuel and groceries. Inflation more broadly will complicate Democrats’ efforts to maintain their tight congressional margins in midterm elections later this year.