The broad increase in prices reported by the Labor Department on Thursday was led by soaring costs for rents, electricity and food, and could heap more political pressure on President Joe Biden, whose popularity has been declining amid anxiety over the rising cost of living.

High inflation, which has overshot the Fed's 2% target, could imperil Biden's economic agenda. Biden in a statement acknowledged the hardships American families are facing, but noted that "there are also signs that we will make it through this challenge." He was alluding to the unchanged reading in the prices of motor vehicles, one of the major drivers of inflation.

"For the Fed, this report provides another wake-up call. Inflation is here and it continues to make its presence known everywhere," said Alexander Lin, an economist at Bank of America Securities in New York.

"We believe that today's print endorses the Fed to move more quickly, and the market will likely encourage the Fed to hike 50 basis points at the next meeting."

The consumer price index gained 0.6% last month after a similar increase in December. Food prices rose 0.9%, with the cost of food consumed at home increasing 1.0%.

There were strong increases in the prices of cereals and bakery products, dairy, fruits and vegetables. Meat prices rose moderately. Electricity prices jumped 4.2%, offsetting cheaper gasoline and natural gas.

In the 12 months through January, the CPI jumped 7.5%, the biggest year-on-year increase since February 1982.

That followed a 7.0% advance in December and marked the fourth straight month of annual increases in excess of 6%. Economists polled by Reuters had forecast the CPI rising 0.5% on month and accelerating 7.3% on a year-on-year basis.

Effective with the January report, the CPI was re-weighted based on consumer expenditure data from 2019-2020. That increased the goods weight and trimmed services, accounting for some of the above-expectations increase in the CPI.

The economy is grappling with high inflation, caused by a shift in spending to goods from services during the COVID-19 pandemic.

Trillions of dollars in pandemic relief fired up spending, which ran against capacity constraints as the coronavirus sidelined workers needed to produce and move goods to consumers.

Financial markets have priced in a 50 basis points increase in March, according to CME's FedWatch tool. Stocks on Wall Street fell, while the dollar was little changed against a basket of currencies. U.S. Treasury prices fell, with the yield on the 10-year note reaching 2% for the first time since August 2019.

Story By | Lucia Mutikani