Inflation accelerated in March as energy prices soared, evidence that Russia’s invasion of Ukraine and Western sanctions added fuel to the fire that’s burning American consumers.

The Consumer Price Index (CPI) rose 8.5% in the 12 months through March, the largest 12-month increase since 1981, the Bureau of Labor Statistics (BLS) said Tuesday. Economists expected the index, which tracks price movements across a broad range of goods and services, to show an annual increase of 8.4%, according to Bloomberg data.

The largest monthly gains came from shelter, food, and gasoline, which alone jumped 18.3% in March, compared to 6.6% in February. The sharp increase in gas prices accounted for over half of last month’s headline inflation, which encompasses all items the index measures.

White House press secretary Jen Psaki warned Monday that the Biden administration anticipated headline CPI for March would show “extraordinarily elevated” levels of inflation. Referencing supply disruptions in global food and energy markets, she characterized the increases as “Putin’s price hike.”

Food prices grew by 1% last month, raising the inflation rate for food to 8.8% in the year through March. Agricultural commodities have been turbulent since Russia’s invasion of Ukraine, including fertilizer. Combined, the two countries account for 28% of global wheat exports.

High food prices are especially painful for lower-income families that spend more on necessities and communities like the Bronx, said Part of the Solution’s (POTS) Executive Director Christina Hanson, who manages the nonprofit that serves 36,000 of the Bronx’s residents. 

POTS has seen a 25% increase in visits to their food pantry within the past three months, and that’s impacting their purchasing decisions as food prices continue to rise. They’re unable to provide large quantities of proteins like peanut butter or eggs. Hanson said, “Sometimes people get a lot more beans than they really want.”

Excluding more volatile food and energy prices, core CPI edged slightly higher to 6.5% in the year through March. Increases to core CPI decelerated for the second month in a row, with a gain of 0.5% in February followed by 0.3% in March. This month’s slowdown in core inflation was primarily driven by a plunge in prices for used cars and trucks, which decreased by 3.8%.

On top of that, gas prices have moderated since peaking at an all-time high on March 11 as global energy markets reshuffled. The average price of gas in the U.S. swelled to $4.33 per gallon and – just over a month later – now sits at $4.09, according to AAA.

Analysts say the weakening pace of core CPI indicates inflation may be moderating.

That’s despite an increase in the prices of most services, like airline fares, which were among March’s biggest gainers. Plane tickets became 10.7% more expensive in March, notching their largest monthly percentage increase on record, but the bump was mostly due to increased travel demand and intensified competition for fuel.

“You have to sort of exclude the more volatile components” of core CPI to gain an accurate impression of March’s report, said Aneta Markowska, chief financial economist at Jefferies. 

Excluding outliers like used cars, airline fares, and hotel prices – which increased by 3.7% in March – core CPI still slows to 0.4% on a month-over-month basis, she said, which is the smallest sequential increase since September of last year.

“So, [core CPI] is still very, very elevated, but at least we’re moving in the right direction.”

If inflation has peaked, that will make it easier for the Federal Reserve to achieve a “soft landing” for the economy as they reign in inflation by raising interest rates. The central bank runs the risk of suffocating the economy if they’re too aggressive with rate hikes, but if inflation begins coming down on its own, there will be no need for them to ramp up their approach.

Some economists say it’s still too early to determine whether inflation has peaked, like David Berson, senior vice president and chief economist at Nationwide Insurance, because of “some significant cross currents in the core [CPI] rate.”

Shelter makes up 40% of core CPI, and a 0.5% increase in March, which Berson says is low compared to the increase in Zillow’s observed rent measure, contributed the most to monthly gains in the core index, pushing the annual inflation rate for shelter to 5%.

Berson anticipates core CPI will remain weighed down by falling auto prices but envisions it will begin accelerating again as housing and rental costs continue rising at their steepest rate since 1991. He said, “There is a chance it’s peaked, but the gains are still pretty strong there.”

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