Consumer prices jumped higher than expected in April, data from the Department of Labor showed Wednesday.
The Consumer Price Index climbed 4.2 percent annually in April. Compared to March, prices rose 0.8 percent.
The annual inflation number is the largest increase since 2008. Economists had foreseen a year-over-year gain of 3.6 percent and 0.2 percent for the month.
Excluding food and energy, categories that can be volatile month-to-month, “core” CPI rose 0.9 percent compared with a month ago, three times faster than the estimate. On an annual basis, core prices are up 3.0 percent, above the 2.3 percent estimated.
The yearly inflation rate may be slightly exaggerated because of the weak economic conditions during the pandemic. Officials at the Fed believe that this so-called “base effect” will last only a few months and that inflation will be transitory.
However, not all economists agree. The economy is recovering more quickly than previously anticipated and much of the spending from the $1.9 trillion stimulus bill passed in March has yet to be integrated into the economy. High consumer demand, bolstered by supply shortages, could push prices up higher than Fed officials anticipate, some analysts have warned.
The higher than expected CPI reading is resurrecting old fears of Runaway inflation. It occurs when prices for most goods and services not only rise but accelerate rapidly, making the cost of living steadily more expensive and reducing the purchasing power of Americans’ earnings and savings.
Growing concerns about inflation have contributed to a sharp sell-off in stock prices this week.
Rising inflation has usually led to higher pay as workers have demanded and received raises to keep pace. Inflation can’t continually accelerate for long without sizable wage increases. Yet pay raises typically lag far behind price increases, thereby squeezing consumers.
Inflation has remained consistently below the 2 percent annual target set by the Federal Reserve. Under Chair Jerome Powell, the Fed is betting that it can keep rates low even as the economic recovery ramps up.
Used car prices jumped 10 percent in April, which the Department of Labor said accounted for about one-third of the overall rise in CPI. Compared with a year ago, used car prices are up 21 percent.
–The Associated Press contributed to this report.