Key Inflation Index Hits 40-Year High Of 8.5%, Driven By 70% Increase In Fuel Costs

A key inflation metric for the U.S. economy has grown to levels not seen in the last 40 years in a sign that the fight against inflation promises to be a long one.

On Tuesday, the U.S. Bureau of Labor Statistics released the latest results of its Consumer Price Index (CPI) and showed that headline inflation rose by 8.5%. This increase overcame outside economists’ expectations of about 7.9% and it was the highest level recorded since August 1982.

Much of the increase has been driven by spikes in prices for food, energy, shelter and vehicles. According to BLS, the cost of food rose by 8.8% in the last year while the prices for used automobiles surged by 35.3%. However, the largest increase was recorded in the price of gas, which rose by 48.3%, and fuel oil, which increased to a staggeringly high 70.1%.

This explosion in energy prices can be linked in part to Russia’s war in Ukraine. Before and since the war began on Feb. 24, the Biden administration has warned that the conflict would further choke global supply chains.

President Joe Biden himself urged the American public to expect these costs. The White House has gone so far as to refer to this effect as "Putin’s price hike" in reference to Russia’s President Vladimir Putin's impact on oil supplies and prices.

Closer to home, the new numbers are sure to raise pressure on the Federal Reserve to take a bolder stance on interest rates. Last month, the central bank initiated a quarter-percentage point rate hike in a bid to tamp down inflation and to gauge how markets would react.

Fed officials have signaled that they are ready to initiate a sharper rate hike in the coming months. Fed Vice Chair Lael Brainard said last week that the central bank would act “rapidly” to shrink its $8.9 trillion balance sheet to combat inflation.