(Bloomberg) — U.S. consumer prices rose in March by the most since late 1981, bolstering expectations that the Federal Reserve will raise interest rates by half a point next month.
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.
Economists in a Bloomberg survey called for the overall CPI to increase 8.4% from a year ago and 1.2% from February.
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 is shifting as such to more hawkish policy, 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.
At the same time, risks that inflation will tip the economy into recession are building. A growing chorus of economists predict that activity will contract either because consumer spending declines in response to higher prices, or the Fed will over-correct in its effort to catch up. However, the majority still expects the economy to grow.
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U.S. Inflation Quickens to 8.5%, Ratcheting Up Pressure on Fed