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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, so-called core CPI increased 6.5% on a 12-month basis, in line with the expectation. However, there were signs that core inflation appeared to be ebbing, as it rose just 0.3% for the month, less than the 0.5% estimate. That in turn sparked some hope that inflation overall was easing and that March might represent the peak.

Markets reacted positively to the report as stocks 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.

Federal Reserve Governor Lael Brainard said the slowing increase in core CPI is a “welcome” development in the effort to bring down inflation.

“”I’ll be looking to see whether we continue to see moderation in the months ahead,” Brainard told the Wall Street Journal.

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.

Due to the surge in inflation, worker wages, 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.

Shelter costs, which make up about one-third of the CPI weighting, increased another 0.5% on the month, making the 12-month gain a blistering 5%, the highest since May 1991.

To combat inflation, the Fed has begun raising interest rates and is expected to continue doing so through the remainder of the year and into 2023. The last time prices were this high, the Fed raised its benchmark rate to nearly 20%, pulling the economy into a recession that finally defeated inflation.

Economists generally don’t expect a recession this time around, though many on Wall Street are raising the probability of a downturn.

“Overall, this report is encouraging, at the margin, though it is far too soon to be sure that the next few core prints will be as low; much depends on the path of used vehicle prices, which is very hard to forecast with confidence,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics. “We’re sure they will fall, but the speed of the decline is what matters.”

Price increases came from many of the usual culprits.

Food rose 1% for the month and 8.8% over the year, as prices for goods such as rice, ground beef, citrus fruits and fresh vegetables all posted gains of more than 2% in March. Energy prices were up 11% and 32%, respectively, as gasoline prices popped 18.3% for the month, boosted by the war in Ukraine and the pressure it is exerting on supply.

One sector that has been a major driver in the inflation burst subsided in March. Used car and truck prices declined 3.8% for the month, though they are still up 35.3% on the year. Also, commodity prices excluding food and energy fell by 0.4%.

Those declines, however, were offset by gains in clothing, services excluding energy and medical care, each of which increased 0.6% for the month. Transportation services also rose 2%, bringing its 12-month gain to 7.7%.

In a sign of economic recovery from a sector hard-hit during the Covid pandemic, airline fares jumped by 10.7% in the month and were up 23.6% from a year ago.

Consumer price inflation in March is expected to have spiked the most since December 1981, driven by higher food costs, rising rents and runaway energy prices.

The consumer price index will be released Tuesday at 8:30 a.m. ET, and economists expect a monthly jump of 1.1% and a year-over-year gain of 8.4%, according to Dow Jones. That compares with February’s increase of 0.8%, or 7.9% year over year, the highest since early 1982.

“It’s going to be ugly,” said Mark Zandi, chief economist at Moody’s Analytics. “It’s a perfect storm — Russian invasion, surging oil prices, China locking down, further disruptions to supply chains, wage growth accelerating, unfilled positions. Just a kind of scrambled mess leading to painfully high inflation. We’re struggling through two massive global supply shocks. It would be hard to imagine we didn’t suffer higher inflation.”

Core inflation, excluding food and energy, is expected to rise a half percent — the same as February — with a year-over-year gain of 6.6%, up from 6.4%, according to Dow Jones.

“The good news is it does look like it will be the peak because of oil prices,” said Diane Swonk, chief economist at Grant Thornton. Oil prices surged shortly after Russia invaded Ukraine in late February, reaching a high for West Texas Intermediate oil futures of $130.50 per barrel in early March. That price has fallen to about $94 per barrel Monday.

Gasoline prices also surged, reaching a national average of $4.33 per gallon of unleaded on March 11, according to AAA. That price Monday was $4.11 per gallon.

“The problem for the Fed is the broadening of inflation from goods into services and also because used car prices might be picking up again,” said Swonk. “The supply chain issues aren’t going away. They’re getting worse.”

Just on base effects, economists say this month or next month could be the peak for inflation. Zandi projects headline CPI will fall to 4.9% by the end of this year.

The Federal Reserve is expected to tighten policy aggressively to rein in the hottest inflation in four decades. Markets expect a half-point hike in May, and economists say a hot inflation report could also bring a half-point hike in June.

“The Fed’s on track. It’s at least a half-percent hike, and the balance sheet reductions starting out,” he said.

The Fed first raised interest rates by a quarter point in March, after cutting the fed funds target rate to zero in early 2020.

Tom Simons, money market economist at Jefferies, expects to see the Fed raise rates by 50 basis points at its May 3 meeting, and he said the CPI should not change that. “If it comes in dramatically higher than expected, which I don’t think it will, it’s going to start talk of a 75-basis-point hike, or an intermeeting hike,” he said. “That’s pretty much nonsense in my opinion.” A basis point equals 0.01%.

Simons said energy prices in CPI are expected to jump 18% in March. “That first half of March was particularly acute post-Russian invasion. Food prices are a similar story but not nearly to the same extent. … Housing again is going to be a pretty significant factor,” he said.

He expects owners’ equivalent rent, or the cost of a home in CPI, to rise about 0.5%, while rents should rise 0.6% month over month. Shelter costs are one area that is expected to keep rising. That would put shelter, which is a third of CPI, up 4.6% year over year.

Swonk said the increases to shelter costs are the highest since early 1990, and they could continue to rise. “I think there’s a risk it comes in on the hot side,” she said.

WASHINGTON — The Biden administration is bracing for Tuesday’s key consumer inflation report to show that the prices Americans pay soared in March, as Russia’s assault on Ukraine caused energy prices to jump.

White House press secretary Jen Psaki said Monday that the Labor Department’s previous report — which showed prices rising at a dramatic rate in February — failed to include the majority of the jump in oil and gas costs caused by the Kremlin’s unprovoked invasion.

“We expect March CPI headline inflation to be extraordinarily elevated due to Putin’s price hike,” Psaki told reporters.

“We expect a large difference between core and headline inflation,” she continued, “reflecting the global disruptions in energy and food markets.”

The Bureau of Labor Statistics on Tuesday will issue its March update to the consumer price index, or CPI. The CPI is the department’s tool for measuring inflation in a basket of goods and services that the average American would buy — ranging from eggs and milk to cellphones and unleaded gasoline.

Economists consider two versions of the CPI data: The headline number that includes all prices consumers face, and a so-called core CPI that excludes often volatile food and energy price fluctuations.

The White House says it anticipates a wider-than-normal disparity between the headline and core readings because of an abnormal increase in gas prices that occurred last month. The price for a gallon of regular unleaded gasoline hit a record high of $4.33 on March 11, according to the American Automobile Association.

That price has since slid to $4.11 a gallon, according to AAA.

“At times, gas prices were more than one dollar above pre-invasion levels, so that roughly 25% increase in gas prices will drive tomorrow’s inflation reading,” Psaki said.

Labor Department data has for several months shown that year-over-year price jumps have been hitting levels not seen since Ronald Reagan was in the Oval Office. The February reading showed benchmark consumer inflation index rose 7.9% over the last 12 months, the highest level since January 1982.

The March report is due out on Tuesday at 8:30 a.m. ET.

The press secretary noted that President Joe Biden has taken several steps to help lower energy costs, including a move to release about 1 million barrels of oil a day from the nation’s Strategic Petroleum Reserve.

On the final day of March, Biden blamed Russian President Vladimir Putin for the most recent spike in energy costs.

“Many people are no longer buying Russian oil around the world. I banned Russian-imported oil here in America, Republicans and Democrats in Congress called for it and support it. It was the right thing to do,” Biden said on March 31.

“But as I said at the time, it’s going to come with a cost,” the president added. “As Russian oil comes off the global market, supply of oil drops and prices are rising. Now Putin’s price hike is hitting Americans at the pump.”

Stalled legislation — key components of the president’s Build Back Better agenda — backed by the White House and congressional Democrats could also help cut child-care and health-care costs, Psaki added.

As the coronavirus pandemic wears on and government aid sent at the beginning of the crisis runs out, Americans are feeling the impact of tight budgets.

One-quarter of Americans said that they felt financially stressed all the time last year, according to a CNBC + Acorns Invest in You survey, conducted by Momentive. The online survey of nearly 4,000 adults was conducted March 23-24.  

Another 41% said they feel financially stressed sometimes, and 33% said they felt rarely or never financially stressed in the last year.

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The main cause of financial stress has been rising prices, as Americans grapple with the highest inflation in 40 years. Many people were unprepared to deal with these price hikes, said Susan Greenhalgh, an accredited financial counselor who runs Mind Your Money in Hope, Rhode Island.

“We don’t really know how to deal with them, and how to address them,” she said, adding that having your eyes focused on your spending is always a good strategy.

Shifting the budget

Financial stress appears to be hitting those with lower incomes the hardest.

Nearly 60% of people who had a household income of less than $50,000 said they’re under more financial stress now than they were a year ago, the survey found.

That’s compared with 53% of people in households making between $50,000 and $100,000 annually and 45% of people making more than $100,000 who said the same thing.

Those who are struggling the most may have to make some serious choices with their finances, said Tania Brown, an Atlanta-based certified financial planner and founder of FinanciallyConfidentMom.com. She recommends prioritizing the essentials before anything else — that includes, rent, food, utilities and basic medical expenses.

“In this environment, legitimately other bills may have to go by the wayside,” she said. “Depending on your income, you’re fighting just to keep your home.”

She also suggested reaching out to creditors for help and looking for programs that may lower the cost of utilities depending on income. It may also be a time to look at other monthly expenses and subscriptions to see what can be reduced or cut, including the cost of internet or cable.

There are also a few ways to find deals on gas, such as using GasBuddy, carpooling or scheduling errands all at once to avoid making multiple trips.

People can also make other changes to bring down bills, such as using heat and air conditioning less, or opting for meals without meat.

In addition, if a family must dip into their emergency savings to stay afloat right now, Brown said they shouldn’t feel bad — the point of having such an account is for such situations.

“You’re using it as intended,” she said.

Prices may keep rising

To be sure, most Americans aren’t feeling as stressed all the time about the pressures of inflation. Still, they might be in a very different financial situation now due to rising prices — some 52% said they’re under more financial stress now than they were a year ago.

Because the cost of goods is likely to continue to rise in the short term, people should be checking in with their budgets on a more frequent basis because of how quickly prices are changing, said Brown.

“You have to be a lot more proactive in reviewing your budget and actually looking at what you spent last month because the numbers may change,” she said. “Give yourself a lot more wiggle room.”

That may mean saving less for a few months, rethinking your short-term financial goals or even looking for a raise or a job that will pay you more.

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Worries are increasing over inflation, with new Federal Reserve data showing a record-high fear over surging prices.

Consumers now see inflation hitting 6.6% over the next year, according to the New York Fed’s survey in March, released Monday. That’s a 10% increase in the median expectation just over the past month and the highest level in a series that dates to 2013.

The survey showed that median expectations over a three-year span actually decreased by 0.1 percentage point to 3.7%, largely due to a declining outlook from those with annual household incomes below $50,000.

However, uncertainty about inflation over both the one- and three-year spans showed record highs.

Household spending expectations rose sharply, climbing 1.3 percentage points to 7.7%, also a new series high.

The data comes a day before the release of the March consumer price index, which is expected to show prices rising at an 8.4% pace over the past 12 months, according to Dow Jones estimates. If that forecast is accurate, it would be the highest number since December 1981.

To fight inflation, the Fed last month approved its first interest rate hike in more than three years. Additional increases are expected throughout the year as inflation runs well above the central bank’s longstanding target of 2%.

Consumers see the fastest increases coming from rent (10.2%), which accounts for about one-third of the CPI. Medical care, food and gasoline are expected to jump by 9.6%. The outlook for college costs decreased by 0.5 percentage point to 8.5%.

Anticipated wage gains held steady at 3%, while 36.2% said they think the unemployment rate will increase over the next year, the highest level since February 2021. Unemployment is currently at 3.6%, just above where it was prior to the Covid pandemic though labor force participation remains 1 percentage point lower.

Anxiety increased slightly over job stability, with the probability of losing one’s job over the next year rising to 11.1%, a 0.3 percentage point gain that is still well below the 13.8% pre-pandemic level.