Consumer prices jumped more than they have in almost nine years in March—but it remains to be seen whether that’s the start of a concerning trend or merely a sign of a reawakening economy.
The Consumer Price Index (CPI) increased 0.6%, accelerating from the 0.4% climb in February and marking the largest one-month increase since August 2012, according to seasonally adjusted data released by the Bureau of Labor Statistics on Tuesday. Gas prices drove much of the increase, rising 9.1%, but the core inflation rate—which excludes volatile food and energy prices—also ticked up, rising 1.6% on a year-over-year basis, up from 1.3% in February but still well below the trend before the COVID-19 pandemic.
“Many prices collapsed at the onset of the crisis and are now normalizing,” Diane Swonk, chief economist at Grant Thornton, wrote in an online commentary.
In addition to paying more at the gas pump, consumers are seeing higher prices for car rentals, hotel rooms, car insurance, used vehicles, and airfare, the data showed. And behind the scenes, the question is what effect these increases may have on the broader economy, particularly if they accelerate in the coming months.
So far, core inflation has been restrained by sluggish demand for activities like travel and leisure, but with COVID-19 vaccinations taking hold and the economy reopening, the prospect of greater inflation is boosting fears that the Federal Reserve may have to check it by raising interest rates sooner and faster than originally planned.
The Federal Reserve traditionally aims for 2% core inflation on a year-over-year basis, but has said it will aim for “moderately above” 2% for “some time” to help rebuild the economy from the pandemic. Many economists say inflation increases will be a temporary symptom of the economy’s rebound, and that the Fed won’t react—at least, not yet. The 0.6% increase was roughly in line with the 0.5% median estimate of economists.