Monthly US consumer prices rose the fastest in 16 1/2 years in March as Russia’s war in Ukraine pushed gas costs to record highs and bolstered the case for a 50 basis point rate hike by the US Federal Reserve next month.
The consumer price index rose 1.2% last month, the largest monthly gain since September 2005, the Labor Department said on Tuesday. The CPI rose 0.8% in February.
Gasoline prices rose to an all-time high of $4.33 a gallon on average in March, according to AAA. While gasoline was the main driver of inflation last month, groceries and services such as rental housing were also strong contributors.
Russia is the second largest crude oil exporter in the world. The United States has banned imports of Russian oil, liquefied natural gas and coal as part of a series of sanctions against Moscow over its invasion of Ukraine.
The war between Russia and Ukraine, now in its second month, has not only pushed up gasoline prices but also caused food prices to surge around the world, as Russia and Ukraine are also major exporters of commodities such as wheat and corn are sunflower oil.
In the 12 months to March, the CPI accelerated 8.5%. That was the largest annual gain since December 1981 and followed a 7.9% jump in February. It was the sixth straight month of annual CPI readings north of 6%.
Economists polled by Reuters had forecast consumer prices to rise 1.2% in March and 8.4% year-on-year.
The strong inflation reading followed last month’s data that showed the unemployment rate fell to a new two-year low of 3.6% in March.
The US Federal Reserve raised interest rates by 25 basis points in March, the first hike in more than three years. The minutes of the monetary policy meeting released last Wednesday appeared to set the stage for large rate hikes in the future.
High inflation and the Fed’s dovish stance have prompted the bond market to fear a US recession, although most economists expect the expansion to continue.
Many believe March could mark the peak in the annual CPI rate, but warn that inflation will remain well above the Fed’s 2% target at least until 2023.
Gasoline prices have retreated from record highs but still remain above $4 a gallon. The high inflation readings of the last year will also fall out of the CPI calculation.
Moderation in used car and truck prices led to a weak monthly reading for underlying inflation.
Excluding the volatile food and energy components, CPI rose 0.3% after rising 0.5% in February. So-called core CPI rose 6.5% in the 12 months to March, the biggest increase since August 1982, after rising 6.4% in February.
Lockdowns in China to contain a resurgence of COVID-19 infections are putting more strain on global supply chains, which could keep commodity prices high. Separately, rising home rents are also expected to keep core inflation hot.