WASHINGTON – U.S. consumer prices rose unexpectedly sharply in March as energy costs marched higher and apparel and lodging costs jumped, according to a government report on Wednesday that suggested long-dormant inflation may be rearing its head.
The consumer price index (search), the most widely used gauge of U.S. inflation, rose 0.5 percent in March after a 0.3 percent increase in February, the Labor Department (search) said. Meanwhile, the closely watched core CPI, which strips out often-volatile food and energy costs, surged 0.4 percent, the biggest increase in nearly 2½ years.
Economists on Wall Street had looked for a 0.3 percent rise in the CPI, with core prices up just 0.2 percent.
The report appeared likely to foster concerns that have been growing of late that a long period of historically low interest rates would soon be drawing to a close.
Mounting signs of economic strength, including a 308,000 gain in payroll jobs and a sharp rise in retail sales in March, had already fueled expectations the Federal Reserve (search) could move to bump up rates as early as this summer.
The Fed has held overnight rates at a 1958 low of 1 percent since June and has vowed to exercise patience in determining when borrowing costs should rise.
Over the past 12 months, core prices have risen 1.6 percent, the biggest 12-month gain since the period ending last May and a sharp pick-up from the tame 1.2 percent increase posted through February.
The underlying inflation rate has now moved up for two straight months after apparently hitting bottom at a 38-year low of 1.1 percent.
A separate report from the Labor Department showed worker wages were not keeping up with the quickened pace of inflation. Real average weekly earnings fell 0.7 percent in March and were essentially unchanged over the past 12 months.
The CPI report showed that energy prices rose a steep 1.9 percent last month, building on a string of hefty gains.
The department said the acceleration in core prices in March from February's 0.2 percent rise was due to upturns in the cost of lodging away from home and apparel.
Clothing prices climbed 0.9 percent after four consecutive monthly drops, while lodging costs 3.8 percent after a big drop in February.