Russia-Ukraine war impact: US inflation rises to new 40-year high

US consumer prices rose in March by the most since late 1981, evidence of a painfully high cost of living and reinforcing pressure on the Federal Reserve to raise interest rates even more aggressively.
 

Gasoline costs drove half of the monthly increase, which were up on account of the Russia-Ukraine war, while food was also a sizable contributor to the jump.
 

The consumer price index increased 8.5 per cent from a year earlier following a 7.9 per cent annual gain in February, the Labour Department data showed on Tuesday. The widely followed inflation gauge rose 1.2 per cent from a month earlier, the biggest gain since 2005.
 

Excluding volatile food and energy components, so-called core prices increased 0.3 per cent from a month earlier and 6.5 per cent from a year ago, due in large part to the biggest drop in used vehicle prices since 1969 and a deceleration in price growth in other merchandise categories.
 

Treasuries rose and the dollar erased an earlier advance to weaken after the data showed core inflation rose less than forecast. The S&P 500 index opened higher.
 

Used car prices, which had been a driver of higher goods inflation for months, were down 3.8 per cent in March, the second straight monthly decline. New car prices, meanwhile, rose slightly.
 

The figures are “a welcome respite from the sustained heated core increases of late, and fuel costs look to ease in response to the recent pullback in oil prices,” Sal Guatieri, senior economist at BMO Capital Markets, said in a note. 
 

“However, food, rent, and a few other items look to remain troublesome and act to slow the expected retreat in inflation in the year ahead.”
 

The March CPI reading represents what many economists expect to be the peak of the current inflationary period, capturing the impact of soaring food and energy prices after Russia’s invasion of Ukraine.