The increase in the Consumer Prices Index, the government's most closely watched inflation barometer, followed a 0.3 percent advance in February and matched the rise registered in January, the Labor Department reported Wednesday.
Excluding energy and food costs, "core" consumer prices rose by 0.4 percent in March — the biggest increase since November 2001. The March rise came after core prices went up by just 0.2 percent in January and February.
In a separate report, the Commerce Department said the biggest increase in exports in nearly eight years helped shrink the nation's trade gap to $42.1 billion in February from $43.5 billion in January.
Inflation was nearly double what Wall Street economists expected. The average forecast among 32 economists surveyed by CBS MarketWatch was for the CPI to rise 0.3 percent and the core to increase 0.2 percent.
With the economy rebounding, some companies are beginning to have a greater ability to raise product prices, economists say. Rising energy costs in some cases are being passed along to consumers in the form of higher prices, analysts say.
As the economy was struggling over the last three years to get back to full throttle, many companies found it difficult to raise prices. That has created a climate where inflation hasn't been a threat to the economy.
The long period of tame inflation is why Federal Reserve policy-makers have been able to leave short-term interest rates at a 45-year low of 1 percent since last June.
Fed Chairman Alan Greenspan and his colleagues, however, have put consumers, investors and businesses on notice that rates can't stay at such super-low levels indefinitely. But they haven't said when the Fed might start pushing rates up.
Some economists believe higher rates could come later this year and a few worry that such super-low rates in combination with a rebounding economy could be the right mix for new, unwanted inflation.
"After three months in a row of strong core gains it now appears that the inflation forces are beginning to win out — at least temporarily," Ethan Harris, U.S. chief economist for Lehman Bros., told CBS MarketWatch. He has moved up his forecast for the first Fed tightening to September.
"Deflation fears RIP and, with payrolls rising, heat is on the Fed," said Ian Shepherdson, chief U.S. economist for High Frequency Economics.
Others economists, however, don't foresee the Fed raising rates until 2005 and are less concerned about the prospects of inflation getting out of control.
Most analysts agree, however, that the Fed probably will hold rates steady at its next meeting in May.
In March, energy prices rose by 1.9 percent, following a 1.7 percent advance. The increase in energy prices last month reflected a 5.5 percent jump in gasoline prices.
Strong demand and tight supplies have pushed up energy prices. Looking ahead, analysts believe prices could climb higher, especially in light of a recent decision by the Organization of Petroleum Exporting Countries to cut its oil output target.
Airfare prices rose by 1.1 percent in March and clothing prices increased 0.9 percent.
Food prices increased by 0.2 percent for the second month in a row.