Inflation in the US hit an expected 7.9% in February, the highest level since January 1982.
The increase came mainly from energy, with the rise in fuel prices accounting for almost a third of the increase. The Bureau of Labor Statistics said the energy index rose 25.6% over the last year and the food index increased 7.9%, the largest 12-month increase July 1981.
"The gasoline index rose sharply in February, increasing 6.6 percent after falling 0.8 percent in January," it added.
President Joe Biden said on Tuesday that the price of fuel in the US is "going to go up" and acknowledged he "can't do much right now" due to the Russian invasion of Ukraine.
The BLS also noted that in February, food prices rose 1%, the largest monthly increase since April 2020.
CPI excluding energy and food rose 0.5% in February, with shelter being "by far the biggest factor in the increase". The BLS attributed this to a rise in demand for recreation, household furnishings and operations, motor vehicle insurance, personal care and airline fares.
In the last year, CPI excluding food and energy rose 6.4%, the largest 12-month change since August 1982.
Meanwhile, inflation-adjusted wages continued to decline by 2.6%.
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All eyes are on the Federal Reserve's interest rate decision next week, with analysts speculating that a rate hike was likely.
Seema Shah, chief strategist at Principal Global Investors, stated that "the hits keep coming", noting that "with the exception of 1980, inflation has never been higher at the time of Fed lift-off - they are well and truly behind the inflation curve".
She noted that despite the crisis in Ukraine, the US is less vulnerable to the resulting energy supply shock, meaning that "the Fed will likely stay focused on the inflation fight, getting as much tightening under their belt within the next few meetings as possible."
She concluded that "the Fed cannot afford to wait and see how financial conditions respond to the geopolitical conflict, they need to move now now now".
Currently, markets predict a 96% chance of a 25bps rate rise next week and 4% likelihood of a 50bps rate increase, according to data from CME. Looking further ahead, traders price the possibility of between six and ten 25bps rate hikes over the course of the next 12 months.
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John Leiper, CIO of Titan Asset Management, predicted that "US inflation is going to go up before it peaks and comes down again.
"The Fed is way behind the curve and markets are on edge. We see the current environment of heightened volatility lasting for some time," he said.
"If you can stomach the dramatic price swings (oil soared 10% before plunging as much earlier this week) then we continue to recommend real asset exposure across investment portfolios to hedge against inflation. We continue to like commodity equities and dividend paying equities within a diversified multi asset class portfolio."
Daniel Casali, chief investment strategist at Tilney Smith & Williamson, said he saw three key risks that could disrupt the Fed's plans: "First, rising gasoline and grocery prices are transparent measures of inflation that could dampen consumer confidence and consumption activity," he explained.
"Second, an elevated CPI inflation rate increases the risk that it will lead to an upward wage and inflation spiral, where firms pass on higher labour costs to consumers. Third, markets may also be complacent on how much the Fed may raise interest rates later in the year to counteract inflation."
Neil Birrell, CIO at Premier Miton Investors and manager of the Premier Miton Diversified Growth fund noted that "today's numbers are very unlikely to affect [the Fed's] decisions, given what is going on in the world overall, particularly as the data came in as expected".
"The good news is that inflation isn't any worse than forecast," he said. "Jerome Powell almost pre-announced the decision on rates last week, but it's beyond that point we should care about. Globally, inflation is on the way up and the policy through the rest of year, and how that will impact inflation and growth, is what all eyes are on."
