Gasoline prices on average soared to an all-time high of $4.33 per gallon in March, according to AAA. While gasoline was the main driver of inflation last month, food and services such as rental housing also made strong contributions.
Russia is the world’s second-largest crude oil exporter. The United States has banned imports of Russian oil, liquefied natural gas and coal as part of a range of sanctions against Moscow for its invasion of Ukraine.
In addition to pushing up gasoline prices, the Russia-Ukraine war, now in its second month, has led to a global surge in food prices as Russia and Ukraine also are major exporters of commodities like wheat and sunflower oil.
In the 12 months through March, the CPI accelerated 8.5%. That was the largest year-on-year 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 advancing 1.2% in March and vaulting 8.4% year-on-year.
The strong inflation readings followed on the heels of data last month showing the unemployment rate dropping to a fresh two-year low of 3.6% in March.
The U.S. central bank in March raised its policy interest rate by 25 basis points, the first hike in more than three years. Minutes of the policy meeting published last Wednesday appeared to set the stage for big rate increases down the road.
High inflation and the Fed’s hawkish posture have left the bond market fearing a U.S. recession, though most economists expect the expansion will continue.
Many believe March could mark the peak in the annual CPI rate, but caution that inflation would remain well above the Fed’s 2% target at least through 2023.
Gasoline prices have retreated from record highs, but still remain above $4 per gallon. Last year’s high inflation readings will also start falling from the CPI calculation.
A moderation in prices of used cars and trucks resulted in a tame monthly reading for underlying inflation.
Excluding the volatile food and energy components, the CPI rose 0.3% after gaining 0.5% in February. The so-called core CPI increased by 6.5% in the 12 months through March, the largest advance since August 1982, after rising 6.4% in February.
Lockdowns in China to contain a resurgence in COVID-19 infections are seen putting more strain on global supply chains, which could keep goods prices elevated. Separately, rising rents for housing are also expected to keep core inflation hot.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci and Chizu Nomiyama)