Inflation grew worse in February amid the escalating crisis in Ukraine and price pressures that became more entrenched.
The consumer price index, which measures a wide-ranging basket of goods and services, increased 7.9% over the past 12 months, a fresh 40-year high for the closely followed gauge, according to the Labor Department’s Bureau of Labor Statistics.
The February acceleration was the fastest pace since January 1982, back when the U.S. economy confronted the twin threat of higher inflation and reduced economic growth.
On a month-over-month basis, the CPI gain was 0.8%. Economists surveyed by Dow Jones had expected headline inflation to increase 7.8% for the year and 0.7% for the month.
Food prices rose 1% and food at home jumped 1.4%, both the fastest monthly gains since April 2020, in the early days of the Covid-19 pandemic.
Energy also was at the forefront of ballooning prices, up 3.5% for February and accounting for about one-third of the headline gain. Shelter costs, which account for about one-third of the CPI weighting, accelerated another 0.5%, for a 12-month rise of 4.7%, the fastest annual increase since May 1991.
Excluding volatile food and energy prices, so-called core inflation rose 6.4%, in line with estimates and the highest since August 1982. On a monthly basis, core CPI was up 0.5, also consistent with Wall Street expectations.
The rise in inflation meant worker paychecks fell further behind despite what otherwise would be considered strong increases.
Real inflation-adjusted average hourly earnings for the month fell 0.8% in February, contributing to a 2.6% decline over the past year, according to the BLS. That came even though headline earnings rose 5.1% from a year ago, but were outweighed by the price surge.
READ MORE: Inflation: All you need to know
High risk of half-percentage-point Fed rate hike in 2022
There is a high risk the Federal Reserve will raise interest rates by half a percentage point sometime this year, according to economists polled by Reuters who also upgraded their inflation outlooks and said they may have to do so again.
Russia's invasion of Ukraine has sent the price of crude oil up by about 25% and pushed the average U.S. price for regular unleaded gasoline to near a record high this week, with little chance of any respite soon.
With the Fed's benchmark overnight interest rate at the near-zero level and U.S. consumer price inflation already surging at its fastest pace in 40 years, most economists say the Fed needs to take action soon.
In testimony to Congress last week, Fed Chair Jerome Powell made it clear the central bank was likely to lift its federal fund's rate by 25 basis points at the end of its March 15-16 policy meeting.
Prior to Powell's comments, some investors had expected a 50-basis-point rate hike might be delivered then.
All 69 economists in the March 4-9 poll agreed that the smaller rate hike was in the cards this month, and nearly all expected the Fed to continue raising rates in 25-basis-point increments.
The Fed has not raised interest rates by half a percentage point since 2000.
That compares with interest rate futures forecasting a slightly higher 1.50%-1.75% rate by the end of 2022.
The U.S. labour market was also expected to continue tightening, with wage growth set to average 5.0% this year, up from the 4.9% predicted in last month's poll.
The unemployment rate was seen falling further to 3.4% - below its pre-pandemic level - by the end of this year from 3.8%.
The 10-year Treasury yield climbed above 2% on Thursday as inflation data came in slightly hotter than expected.
The yield on the benchmark 10-year Treasury note rose 4 basis points to 1.99%, after topping 2% for the first time since Feb. 25. The yield on the 30-year Treasury bond climbed 7 basis points to 2.374%.