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April 13, 2021, 2:18 p.m. EDT

U.S consumer prices surge in March, CPI finds, pushing inflation to 2 1/2-year high

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Jeffry Bartash

The numbers: Consumer prices rose in March for the fourth month in a row and the pace of inflation hit the highest level in two and a half years, underscoring new pressures emerging on the economy as the U.S. recovers from the coronavirus pandemic.

The consumer price index jumped 0.6% last month, the government said Tuesday , spearheaded by the rising cost of oil. Economists polled by Dow Jones and The Wall Street Journal had forecast a 0.5% increase in the CPI.

The rate of inflation over the past year shot up to 2.6% from 1.7% in the prior month, marking the highest level since the fall of 2018.

The yearly rate of inflation is widely expected to surge in the next few months.

A chief reason is a faster U.S. economic recovery fueled by massive fiscal stimulus and a sharp drop this year in new coronavirus cases. That’s boosting demand for a wide array of goods and services at a time when when many key materials are in short supply.

Inflation also turned negative March and April of 2020 in the early stages of the pandemic when the U.S. economy was largely locked down. As those readings drop out of the 12-month average, it will make inflation even worse.

The yearly rate of inflation is likely to settle down later in the year, but it could top 3% in the near future and put more pressure on the Federal Reserve to tighten monetary policy. The last time inflation topped 3% was a decade ago.

Fed leaders insist any increase in inflation is likely to be mild and temporary.

The Fed predicted in March that inflation would average 2.4% in 2021, using its preferred PCE price measure. The rate of inflation would then drop back down to the central bank’s 2% target by 2022.

The Biden White House, mindful of rising U.S.Treasury yields, has drawn the same conclusion as the central bank. The president’s top economists argued in a new paper on Monday that inflation worries are vastly overblown.

What happened: The cost of gasoline jumped again and accounted for almost half of the increase in the cost of living last month. Gas prices leaped 9.1%.

Oil prices are on the rise because of production cutbacks by energy companies and higher consumer demand as Americans get back on the road or take to the skies again.

The cost of food edged up a scant 0.1%, but prices are expected to rise somewhat faster in the coming months, particularly for takeout and meals prepared outside the home.

A separate measure of consumer inflation that strips out food and energy rose a smaller 0.3% last month. The so-called core rate has risen 1.6% in the past year, up from 1.3% in the prior month.

Economists prefer readings of core inflation because energy and food prices can often gyrate sharply over short periods and distort underlying price trends.

Prices also increased last month for rent, auto insurance, used vehicles, home furnishings, recreation and personal-care items.

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