Consumer prices show biggest gain since 2012

See what the March numbers mean for the U.S. economy and if they represent a reawakening of long-dormant inflation.

U.S. consumer prices increased a sharp 0.6% in March, the biggest uptick since 2012, while inflation over the past year jumped 2.6%. The big gains had been anticipated and are largely expected to be a temporary blip rather than a reawakening of long dormant inflation.

The increase in the Labor Department’s consumer price index Tuesday followed a 0.4% increase in February and was the biggest one-month gain since a 0.6% bump in August 2012.

The year-over-year increase was far greater than the 1.7% increase for the 12-month change the previous month and while it easily exceeded the Federal Reserve’s 2% target for inflation, the 2.6% increase in March was more of a snapshot of a period of time last year when prices tumbled as much of the world went into a pandemic lockdown.

The Fed a year ago slashed its key interest rate to near zero and has signaled that it does not plan to start increasing interest rates until it sees a sustained rise in inflation above its 2% target. Currently, the expectation is that the Fed’s first rate hikes will not occur until after 2023.

Economists call the March jump a base effect due to those plunging prices at the start of the pandemic. The phenomenon can make inflation appear worse than it is at first glance.

For example, the 2.6% March jump looks out of whack compared with core inflation, which excludes volatile food and energy. That was up a more moderate 1.6% over the past 12 months, compared to a 1.3% 12-month increase in February.