Inflation hits new 40-year high, surging 7.9%

Inflation around the U.S. reached a new 40-year high in February, with consumer prices jumping 7.9% from a year ago — the fastest annual rate since the Reagan administration.

Rising costs of energy, housing and food drove the increase, the Labor Department said on Thursday. The price of energy has surged 26% over the last year, sharply increasing the cost of gasoline, fuel oil and natural gas for home heating. Groceries were up 8.6% from a year ago, while clothing rose 6.6%.

Excluding volatile food and energy, consumer prices rose 6.4% year-over-year, the Labor Department said.

The data, based on surveys in the middle of the month, doesn't capture the strain from Russia's war in Ukraine, which is pushing the cost of energy even higher and threatens to strain already wobbly supply chains.

The conflict means that, instead of price increases easing this spring as many economists had hoped, the already high prices could increase even faster in the coming months.

"The Russia-Ukraine war adds further fuel to the blazing rate of inflation via higher energy, food, and core commodity prices that are turbocharged by a worsening in supply chain problems," Kathy Bostjancic, chief U.S. financial economist with Oxford Economics, said in a note. "This will lead to a higher near-term peak in inflation and a slower descent through 2022 than previously envisaged."

Half of small business owners expect to raise prices in the next six months, a survey from PNC found.

Crude oil traded at $108 a barrel on Thursday, up sharply from $90 before Russia's invasion, and the average price of gasoline this week hit a record high of $4.25 a gallon. The U.S. this week banned imports of oil from Russia, the world's third-largest producer of crude, which could push prices even higher.

"Inflation will accelerate in March and April as the knock-on effects of the Russia-Ukraine war push prices even higher at supermarkets, gas pumps, and on utility bills," Bill Adams, chief economist of Comerica Bank, said in a note.

For most Americans, inflation is running far ahead of the pay raises that many received in the past year, making it harder for them to afford necessities like food, gas and rent. 

Seeking to curb inflation, the Federal Reserve is set to raise interest rates several times this year, beginning with a modest hike next week. The Fed faces a delicate challenge, though: If it tightens credit too aggressively this year, it risks undercutting the economy and perhaps triggering a recession.

The Associated Press contributed reporting.