Inflation surges to 8.5%, highest in over 40 years

Inflation surged again in March, as consumer prices hit yet another fresh peak not seen in a generation.

Why it matters: The relentless rise in prices is a challenge for investors, Federal Reserve policy makers and politicians, who are all trying to navigate an inflationary backdrop that hasn't been seen since the early 1980s.

Driving the news: The consumer price index rose 1.2% in March compared to February, above economists expectations for 1.1%.

• Prices were up 8.5% over the last year, higher than the 8.4% rise that economists expected, according to consensus expectations reported by FactSet.
• That's the highest annual rate of inflation since December 1981.

Details: Food, fuel and shelter costs were the key drivers of the upward rise in the overall price rise.

• Gasoline prices jumped 18.3% from February to March — as energy markets reeled from the war in Ukraine — accounting for over half the rise in monthly headline inflation.
• So-called core inflation — excluding volatile food and energy prices — rose 0.3%, less than the 0.5% analysts expected.
• Prices for used cars and trucks, which were an early driver of post-Covid price increases, fell 3.8% in March.

Our thought bubble: Both bond and stock markets rallied after the report. That suggests investors see the CPI report as a reason to think that battling inflation may require fewer interest rate hikes than they had thought just a few minutes earlier.