Massive price rises have already led to the biggest annual increase in inflation in 40 years, however, not surprising the markets. Inflation was already haunting the economy before Russia's operation in Ukraine last month. However, it could still erode President Joe Biden's popularity.
The Federal Reserve is expected to start raising interest rates as early as next Wednesday.
With inflation nearly four times the U.S. central bank's 2-per-cent target, economists are expecting as many as seven rate hikes this year or larger one-off hikes.
Lower-income households bear the brunt of high inflation as they spend more of their income on food and gasoline.
"Consumers' shock at rapidly rising gas prices at the pump will continue to put pressure on the Fed and policy makers to do something, anything, to slow down the speed at which prices everywhere are moving higher," Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, N.C, said.
"There are many people who point out that the Fed can't control supply chains or increase the efficiency of our ports, but they never could. What they can control is interest rates and they are much too low."
The consumer price index increased 0.8% last month after gaining 0.6% in January, the Labor Department said on Thursday. Petrol (+6.6%) accounted for almost a third of the CPI increase. This is despite a preliminary 0.8% fall in petrol prices in January. Food prices jumped by 1.0%, with the cost of groceries consumed at home rising by 1.4%.
In the 12 months through February, the CPI shot up 7.9%, the biggest year-on-year increase since January 1982. That followed a 7.5% jump in January. However, as we said, the rise in CPI in February did not surprise economists and was in line with forecasts.
Last month's CPI data does not fully capture the spike in oil prices. Prices shot up more than 30%, with global benchmark Brent hitting a 2008 high at $139 a barrel, before retreating on Thursday to $118 a barrel.
Notably, the United States have imposed harsh sanctions on Moscow, with President Joe Biden on Tuesday banning imports of Russian oil into the country.
Gasoline prices in the US are averaging a record $4.318 per gallon compared with $3.469 a month ago.
According to David Kelly, chief global strategist at JPMorgan Funds in New York, if gasoline averaged close to $4.20 for the year, that would add over $1,000 to the expenses of the average household.
The Russia-Ukraine war, which has also boosted prices of wheat and other commodities, is seen keeping inflation uncomfortably high into the second quarter.
Current inflation is of a multi-component nature. In particular, it was also caused by a shift in spending on goods away from services during the COVID-19 pandemic and the trillions of dollars invested in the fight against the pandemic. The resulting surge in pent-up demand faced capacity constraints as quarantine made it difficult to deliver raw materials to factories and finished products to consumers.
Excluding volatile food and energy components, the core consumer price index rose 0.5% last month after growing 0.6% in January. This falls short of Russia's 1.52%, but is still a significant gain.
The 0.5% increase in housing costs, such as rental housing, as well as hotel and motel accommodation, accounted for more than 40% of the increase in the so-called core CPI.
Rents jumped by 0.6%. Consumers also paid more for leisure, household goods and operations, vehicle insurance, and clothing and personal care products.
Airfares rose 5.2% as a sharp decline in coronavirus infections increased demand for travel, at least among Americans.
The annual core CPI raced up 6.4%. That was the largest year-on-year gain since August 1982 and followed a 6% increase in January.
Most economists had expected the annual core CPI rate to peak in March just above 6.5% and retreating in April as large increases from last spring started to drop out of the calculation.
"We still think that is the most likely outcome, but there is a risk that energy passthrough effects from the latest spike in oil prices will slow that process," Lou Crandall said.
"Exactly how the Fed will balance the impact of higher oil prices on the inflation data against the 'energy tax' hit to incomes and real spending remains unclear."
Tightening labor market conditions will also contribute to higher inflation, despite monthly wage growth stalling in February. There were a near record 11.3 million job openings at the end of January. The jobs-workers gap was 4.8 million, accounting for 2.9% of the labor force. Rising prices are likely to encourage workers to take up vacancies.
So far, however, unemployment figures are disappointing.
A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits increased 11,000 to a seasonally adjusted 227,000 for the week ended March 5, still at levels consistent with a tight labor market.
Economists had forecast 217,000 applications for the latest week. Claims have dropped from a record high of 6.149 million in early April of 2020.
Wall Street's main indexes fell on Thursday.
Technology stocks were the leaders in the decline.
While the numbers matched economists' expectations, investor fears are rife that inflation will accelerate further in the coming months as Russia's military actions in Ukraine drive up the costs of oil and other commodities.
Nine of the 11 major S&P sectors declined, with technology stocks falling the most, 1.9%, after leading a Wall Street rally in the previous session. Chipmakers fell 2.2%.
Energy shares rose 1.2% after taking a breather on Wednesday.
"Bottom line is inflation is elevated and there's more to come," Peter Cardillo said.
"I was looking for inflation to peak in the second quarter but now that depends on oil. Perhaps we won't see any relief until the end of the year."
Fed Chair Jerome Powell last week said he would back a quarter point rate increase when the US central bank meets next week and would be "prepared to move more aggressively" later if inflation does not abate as fast as expected. Traders now see a 95% probability of a 25-basis-point hike by the Fed in its March meeting. However, the first hike may be even more serious.
Citigroup shares dropped 2.1%. Despite this, Goldman Sachs Group Inc said it was closing its operations in Russia, becoming the first major Wall Street bank to leave the country following Moscow's special operation in Ukraine.
Meanwhile, negotiations between Russia and Ukraine have yielded no progress.
At 09:55 US Eastern Time, the Dow Jones Industrial Average was down 0.74%, at 33,040,13, the S&P 500 was down 0.92%, at 4,238,37, and the Nasdaq Composite was down 1.44%, at 13,064,84.
Megacap growth stocks Microsoft, Meta Platforms and Tesla all slipped more than 1%, while Nvidia and Apple dropped over 2.5% each.
Shares of Amazon.com jumped 4.8% after its board approved a 20-for-1 split of the e-commerce giant's common stock and authorized a $10 billion buyback plan.