The numbers: The rate of U.S. inflation topped 8% in March for the first time in more than four decades and showed little sign of easing up, explaining the new-found urgency at the Federal Reserve to quickly undo its easy-money strategy.
The consumer price index jumped 1.2% in the month, driven by the higher cost of gasoline, food and housing, the government said Tuesday. It was the largest monthly gain since Hurricane Katrina in 2005.
The increase exceeded Wall Street’s forecast of a 1.1% advance.
The rise in the cost of living has been hitting new highs for months. The rate of inflation in the past year moved up to 8.5% in March from 7.9%.
The last time inflation breached 8% was in January 1982, when Ronald Reagan was president.
High inflation has alarmed Americans and put the political heat on the Biden administration. Surveys show inflation is the public’s biggest worry and its hurting Democrats at the polls ahead of the pivotal congressional elections in the fall.
Both stocks and bonds were boosted after the inflation data. Stock-index futures extended gains to trade moderately higher, while Treasury yields, which move opposite to price, pulled back.
The surge in inflation could begin to ebb soon, economists say, if the price of oil stabilizes and supply shortages finally begin to ease.
But it could take a few years or even longer, they say, before inflation drops back to precrisis levels of less than 2%. Some even worry that higher inflation is here to stay.
One potential sign inflation might be peaking was the smallest increase in six months in the so-called core rate of inflation that strips out food and energy. It rose just 0.3% last month.
Yet the increase in the so-called core rate over the past year moved up to 6.5% from 6.4%, marking the biggest upturn since the middle of 1982.
The Fed views the core rate as a more accurate measure of inflationary trends, but most Americans still pay a large share of their budget for fuel and meals.
Big picture: High inflation is showing up everywhere: At gas stations, grocery stores, big-box chains such as Best Buy BBY, +0.86% and online sellers like Amazon AMZN, -2.16%. Rents and housing prices have also surged.
The Fed is moving faster than it previously planned to jack up interest rates in an effort to tame inflation. Higher borrowing costs could slow demand for consumer goods and business supplies and help ease the upward pressure on prices.
The Fed is in a tough spot, though. If it doesn’t act fast enough, inflation could get ingrained in the economy and hurt the U.S. in the long run. Yet if it goes too aggressively, the central bank could trigger a recession.
For now most economists and investors are taking a wait-and-see approach and not banking on either scenario.