U.S. consumer prices rose at the fastest rate in nearly 12 years in April but the surge may not be enough to persuade the Federal Reserve to raise interest rates sooner than expected.

The Labor Department reported Wednesday that the Consumer Price Index jumped 4.2% from a year earlier and 0.8% from the previous month. A Dow Jones survey had estimated gains of 3.6% and 0.2%, respectively.

Excluding food and energy prices, the core CPI increased 3% year over year compared to estimates of 2.3%. The increase in overall prices was the largest since September 2008 while the gain in core inflation was the largest since 1981.

Economists have been expecting inflation to rise as the economy recovers from the coronavirus pandemic. “One of the main reasons for the big annual gain [in April] was because of base effects, meaning inflation was very low at this time in 2020 as the COVID pandemic caused a widespread shutdown of the U.S. economy,” CNBC noted.

Gasoline prices, for example, soared 50% versus April 2020, though they decreased 1.4% versus March.

Stifel Chief Economist Lindsey Piegza said that the startling rise in prices primarily reflects reflation.

“Remember, it was this time last year that the country was going into lockdown — tens of millions of jobs were lost within a matter of weeks, and consumption and production were shuttered virtually overnight, undermining market activity and price sustainability,” said Piegza.

Michael Pearce, senior U.S. economist at Capital Economics, said, “As the cyclically-sensitive components of CPI are still rising at a modest pace, we doubt this report will change the view of officials that inflationary pressures are ‘largely transitory.'”

Fed officials repeatedly have said they will not raise interest rates until their preferred measure of inflation averages around 2% over an extended period. If there are signs that inflation is going to jump in a lasting way, “we would use our tools to bring inflation to our 2 percent longer-run goal,” Richard Clarida, the Fed’s vice chair, said Wednesday.

The rising prices in April also reflected supply shortages, with used-car and truck prices, for example, surging 21% amid a chip shortage that has reduced production of new cars.

“I think a lot of us are expecting a pretty significant increase of spending on services in the next couple of months and that’s where a lot of the pressure on CPI is going to come from,” said Richard Moody, chief economist at Regions Financial.

Photo by Stephanie Keith/Getty Images

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