US Inflation Rate is 8.5%- Highest since 1981

Prices that consumers pay for everyday items surged in March 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 wide-ranging basket of goods and services, jumped 8.5% from a year ago on an unadjusted basis, above even the already elevated Dow Jones estimate for 8.4%.

Excluding food and energy, the CPI increased 6.5%, in line with the expectation.

The data reflected price rises not seen in the U.S. since the stagflation days of the late 1970s and early ’80s. March’s headline reading in fact was the highest since December 1981. Core inflation was the hottest since August 1982.

However, core inflation appeared to be ebbing, rising 0.3% for the month, less than the 0.5% estimate.

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

“The big news in the March report was that core price pressures finally appear to be moderating,” wrote Andrew Hunter, senior U.S. economist at Capital Economics. Hunter said he thinks the March increase will “mark the peak” for inflation as year-over-year comparisons drive the numbers lower and energy prices subside.

Still, due to the surge in inflation, real earnings, despite rising 5.6% from a year ago, weren’t 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 Bureau of Labor Statistics report.

The inability of wages to keep up with costs could add to inflation pressures.

The Atlanta Federal Reserve wage tracker for March indicated gains of another 6% which is “symptomatic of inflation pressures continuing to broaden,” said Brian Coulton, chief economist at Fitch Ratings. Coulton pointed out that the core inflation deceleration was due largely to a drop in auto prices, while other prices continued to show increases.

Read the rest here.