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

The prices consumers pay on daily items in March rose 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 broad basket of goods and services, jumped 8.5% from a year ago on an unadjusted basis, above Dow Jones’ already high estimate of 8.4%.

Excluding food and energy, CPI rose 6.5% in line with expectations.

The data reflects price increases not seen in the US since the stagflation days of the late 1970s and early 1980s. In fact, the March headline reading was the highest since December 1981. The core inflation was the hottest since August 1982.

However, core inflation appears to be ebbing, rising 0.3% on the month, below estimates of 0.5%.

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

“The big news in the March report is that core price pressures are finally looking to moderate,” Andrew Hunter, chief US economist at Capital Economics wrote. Hunter said he believes the March increase “represents the peak” of inflation as annual comparisons lead to lower numbers and lower energy prices.

However, due to rising inflation, real earnings, although up 5.6% from a year ago, are still not 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 report by the Bureau of Labor Statistics.

The inability of wages to keep pace with costs may add to inflationary pressures.

Brian Colton, chief economist at Fitch Ratings, noted that the Atlanta Fed’s March wage index pointed to a further 6% gain, which is “a symptom of continued widening inflation pressures.” Colton noted that the slowdown in core inflation was largely due to lower auto prices, while other prices continued to show increases.

Shelter costs, which make up about a third of the CPI weight, rose another 0.5% in the month, bringing the 12-month gain to 5%, the highest since May 1991.

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

The price increases came from several usual culprits.

Food prices rose 1% during the month and 8.8% over the year, with prices for commodities such as rice, beef, citrus fruits and fresh vegetables posting gains of more than 2% in March. Energy prices rose 11% and 32% respectively as gasoline prices jumped 18.3% for the month.

And one of the sectors that was the main driver of the inflation explosion in March has receded. Used car and truck prices are down 3.8% during the month, although they are still up 35.3% over the year. Commodity prices, excluding food and energy, also decreased by 0.4%.

However, those declines were offset by gains in apparel and services excluding energy and Medicare, each of which rose 0.6% during the month. Transportation services also rose 2%, bringing its 12-month gain to 7.7%.

In a sign of the economic recovery from a sector hard hit during the pandemic, airfares jumped 10.7% in the month and are up 23.6% from a year ago.

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