Inflation rose at fastest pace since 1981 in March as consumer prices jumped 8.5% annually

Consumer prices climbed further into the stratosphere in March and the only consolation is that the painful bout of skyrocketing costs may have peaked.

Inflation hit a fresh 40-year high as continuing surges in gasoline, food and rent costs more than offset moderating prices for used cars.

The consumer price index leaped 8.5% annually, the fastest pace since December 1981, the Labor Department said on Tuesday, likely cementing Federal Reserve plans for an unusually large half-point interest rate hike early next month.

That increase is up from 7.9% in February and inflation now has notched new 40-year highs for five straight months. Prices rose 1.2% from their February level, the sharpest monthly increase since September 2005.

What causes inflation? Gasoline prices were the chief culprit, jumping 18.3% and accounting for more than half the overall rise in costs. Average unleaded gas set a record $4.33 a gallon last month before easing to $4.11 by Monday, according to AAA. Pump prices were up 48% from a year earlier.

Russia’s invasion of Ukraine has stoked last fall’s inflation surge by reducing Russian oil supplies and intensifying supply chain bottlenecks, especially for energy, wheat and other commodities shipped from the region.

Meanwhile, worker shortages in the U.S. are prompting companies to boost pay sharply to attract job candidates, leading them to lift prices to maintain profit margins.

Excluding volatile food and energy items, so-called core prices rose 6.5% annually in March, the largest advance since August 1982.

But on a monthly basis, core prices increased 0.3%, the slowest increase in six months and a sign such prices may be easing, Contingent Macro Research says.

Still, economist Kathy Bostjancic of Oxford Economics says the report bolsters her view that the Federal Reserve will hike interest rates by a larger-than-normal half a percentage point at both its May and June meetings. She figures inflation won't peak until May.

But Ian Shepherdson of Pantheon Macroeconomics says further softening in core prices could cause the Fed to pull back to a quarter-point increase at the June gathering.

In March, used car prices offered some relief, falling 3.8%. But that still left costs 35.3% higher than a year earlier.

But while prices for some goods are moderating, the cost of services is rising as the pandemic eases and consumers increasingly dine out, travel and do other activities. Airfares surged 10.7%, pushing the yearly rise to 23.6%. Hotel rates increased 3.3% monthly and 25.1% annually.