U.S. inflation rate keeps heading higher, now up to 8.5%

The U.S. inflation rate is soaring at its fastest pace in more than 40 years, with costs for food, gasoline, housing and other necessities squeezing consumers and wiping out the pay raises that many people have received.

The Labour Department said Tuesday that its consumer price index jumped 8.5 per cent in March from 12 months earlier — the biggest year-over-year increase since December 1981.

Prices have been driven up by bottlenecked supply chains, robust consumer demand and disruptions to global food and energy markets worsened by Russia's war against Ukraine.

Inflation increased by 1.2 per cent in the month of March alone from February's level. That's the biggest one month increase since 2005 and an uptick from the 0.8 per cent increase from January to February.

The March inflation numbers were the first to capture the full surge in gasoline prices that followed Russia's invasion of Ukraine on Feb. 24. Moscow's brutal attacks have triggered far-reaching Western sanctions against the Russian economy and have disrupted global food and energy markets. The average price of a gallon of gasoline in the U.S. currently costs $4.10 US, a figure that has increased by 43 per cent from a year ago.

"The war in Ukraine has complicated the inflation outlook," noted Luke Tilley, chief economist at Wilmington Trust.

That increase in the price to fill up a tank has added expenses to the cost of just about everything that relies on shipping to get to a consumer's door.

The eye-popping figure increases the likelihood that the U.S. central bank will be even more aggressive in raising its interest rate for the rest of the year to try to slow borrowing and spending, and tame inflation.

Inflation, which had been largely under control for four decades, began to accelerate in the U.S., Canada and around the world as economies rebounded with unexpected speed and strength from the brief but devastating coronavirus recession that began in the spring of 2020.

The recovery, fuelled by huge infusions of government spending and super-low interest rates, caught businesses by surprise, forcing them to scramble to meet surging customer demand. Factories, ports and freight yards struggled to keep up, leading to chronic shipping delays and price spikes.

While an eye popping figure by any metric, some economists are starting to think that March may prove to be the high water mark for inflation, as the number will slowly start to inch down from now on.

"March will likely be the peak for inflation as the indices will be lapping some strong year-ago readings starting in April, while gasoline prices have eased off lately," CIBC economist Katherine Judge said.