Biggest Inflation Jump In Months

U.S. consumer prices jumped 0.6 percent in March, the biggest inflation surge in five months, as the costs of energy, clothing and airline fares all rose sharply.

The Labor Department said last month's increase in the Consumer Price Index, the most closely watched inflation gauge, followed a 0.4 percent rise in February and left consumer inflation rising at an annual rate of 4.3 percent in the first three months of this year. That was a full percentage point above the 3.3 percent rise in prices for all of 2004.

Wednesday's report showed that even outside of food and energy, there were significant price pressures last month. The so-called core rate of inflation rose by a worrisome 0.4 percent in March, double what economists had expected, reflecting higher prices for clothing, hotel rooms and airline tickets.

The report was likely to raise concerns at the Federal Reserve because of the price pressures becoming evident outside of the energy area. It's also raising expectations for higher interest rates, reports CBS News MoneyWatch Correspondent Susan McGinnis.

The figures showed significantly higher price pressures than had been observed in Tuesday's report on wholesale inflation, which showed a similar overall increase of 0.7 percent, reflecting a sharp jump in energy prices, but only a tiny 0.1 percent increase in prices outside of energy and food.

Economists and the Federal Reserve track the core inflation figure more closely, believing it is a better gauge of underlying inflation pressures since the overall price number can swing widely in response to the volatile energy and food components.

The 0.4 percent rise in retail prices outside of food and energy in March followed a 0.3 percent increase in February, which had been the first uptick from four straight months of more moderate 0.2 percent gains in the core inflation rate.

So far this year, the core rate for consumer prices are rising at an annual rate of 3.3 percent in the first three months of the year, the fastest quarterly inflation spurt for core prices since the summer of 2001. For all of last year, core inflation rose by just 2.2 percent.

The Fed has been raising interest rates at a gradual pace of small moves since June of last year. However, when it delivered its seventh quarter-point rate hike in March 22, it raised concerns that inflation, which has been long dormant outside of energy costs, might be starting to rise at faster rates.

For March, energy costs shot up 4 percent, the biggest one-month gain since a similar 4 percent rise last October. Gasoline prices climbed 7.9 percent, reflecting the shock motorists have gotten at the pump. There should be a further jump for April given that motorists nationwide are now paying an average of $2.28 per gallon.

Food costs rose by a more moderate 0.2 percent in March, following an even smaller 0.1 percent gain in February. Price declines for pork and fresh fruits helped to moderate price increases for beef, poultry and vegetables.

Outside of energy and food, clothing costs, which had been declining, jumped 0.8 percent in March, the biggest one-month gain in 12 months.

Airline ticket prices rose by 2.7 percent, the largest increase in nearly four years. Airlines have been raising ticket prices to cope with soaring fuel costs.

The costs of hotel and motel rooms shot up 3.9 percent in March, the biggest increase on record.