Consumer prices rose 8.5% in March, slightly hotter than expected and the highest since 1981

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Prices that consumers pay on everyday items surged in March to their highest levels since the early days of the Reagan administration, according to Labor Department data released Tuesday.

The consumer price index, which measures a wide-ranging basket of goods and services, jumped 8.5% from a year ago on an unadjusted basis, above even the already elevated Dow Jones estimate for 8.4%.

Excluding food and energy, the CPI increased 6.5%, in line with the expectation.

The data reflected price increases not seen in the U.S. since the stagflation days of the late 1970s and early ’80s. March’s headline reading in fact was the highest since December 1981. Core inflation was the hottest since August 1982.

Due to the surge in inflation, real earnings, despite rising 5.6% from a year ago, still weren’t keeping pace with the cost of living. Real average hourly earnings posted a seasonally adjusted 0.8% decline for the month, according to a separate Bureau of Labor Statistics report.

To combat inflation, the Federal Reserve has begun raising interest rates and is expected to continue doing so through the remainder of the year and into 2023.

Price increases came from many of the usual culprits.

Food rose 1% for the month and 8.8% over the year. Energy prices were up 11% and 32% respectively, while shelter cost, which make up about one-third of the CPI weighting, increased another 0.5% on the month, making the 12-month gain a blistering 5%.

Despite the increases, markets reacted positively to the report. Stock market futures rose and government bond yields declined.

One sector that has been a major driver in the inflation burst subsided in March. Used car and truck prices declined 3.8% for the month, though they are still up 35.3% on the year. Also, commodity prices excluding food and energy fell by 0.4%.

Those declines, however, were offset by gains in clothing, services excluding energy and medical care, each of which increased 0.6% for the month. Transportation services also rose 2%, bringing its 12-month gain to 7.7%.

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