WASHINGTON (Reuters] – The U.S. witnessed its largest ever annual inflation in February. This is despite Russia’s ongoing war with Ukraine driving up prices for other commodities.

Labor Department reported that the consumer price index grew 0.8% in February, after rising 0.6% in January.

CPI rose 7.9% over the 12-month period ending February. It was the highest year-on-year growth since 1982, January 1982. This was following a jump of 7.5% in January, and it marked the fifth consecutive month with CPI readings above 6%.

Reuters polled economists and they predicted that the CPI would increase 0.8% and rise to 7.9% year-on.

The Federal Reserve has set a 2.0% inflation target, but the rate of inflation is way higher than that. Economists expect seven rate increases by the U.S. central banks this year, as they are expected to raise interest rates on Wednesday.

The spike in oil prices after Russia invaded Ukraine on February 24th is not captured by the CPI data last month. The global benchmark reached $139 a bar in 2008, a record high, and prices rose more than 30%. Prices then retreated on Wednesday following reports from the United Arab Emirates that they would ask other OPEC members for increased production.

Moscow has been subject to harsh sanctions by the United States and allies. President Joe Biden banned imports from Russia on Tuesday. Russia is second in crude oil exports.

AAA data shows that gas prices are at an all-time high in the United States, with averages of $4.318 per gallon. This is a significant increase from $3.469 one month ago.

David Kelly (NYSE:) Funds, New York’s chief global strategist, said that if the annual average gasoline price was $4.20, it would cost over $1,000 more to cover the household expenses. Inflation is expected to remain high in the second quarter due to Russia-Ukraine’s war. This has also caused a rise in prices for wheat and other commodities.

According to Kevin Cummins, chief U.S. economist for NatWest Markets Stamford (NYSE:), “Our estimates indicate that gasoline and prices will add more than 1 full percentage point to the overall year-on–year prints in each of the next ten month,” he said.

As they spend more income on gasoline and food, lower-income households are the most affected by high inflation.

Tight labor market

Because of a switch in expenditure to goods and services after the COVID-19 outbreak, inflation had been a problem long before Russia-Ukraine. The pandemic relief funds of trillions of dollars boosted spending and ran into capacity limitations as the coronavirus disrupted the labor market dynamics.

The CPI rose 0.5% in February, after rising 0.6% in January.

The core CPI soared 6.4% in the twelve months to February. It was the highest year-on–year gain since August 1982. This followed a 6.0% rise in January.

The core CPI has been fuelled by increasing rentals and the shortage of goods such as motor vehicles. Inflation is hot because of sharply falling coronavirus infection rates.

Most economists expected that the core CPI annual rate would peak at 6.5% in March, and then fall to 6.5% in April. This was before the Russia-Ukraine conflict.

Lou Crandall (LON) chief economist, Wrightson ICAP in Jersey City, stated that while we still believe that this outcome is most likely, there’s a chance that energy transfer effects caused by the recent spike in oil prices could slow down that process.

The Fed is still unsure how it will reconcile the effects of higher oil prices and inflation data against the energy tax’ impact on incomes, real spending, and other factors.

Even though wage growth was slowing, tightening labor markets will lead to higher inflation. Nearly 11.3million job opportunities were available at the end February. There was 2.9% unemployment in the jobs-workers gap, or 4.8 million.

The Labor Department released a separate report on Thursday showing that initial claims to state unemployment benefits rose by 11,000 to an adjusted seasonally of 227,000 during the week ended March 5th, levels consistent with a tight labor marketplace.

According to economists, 217,000 applicants were expected for this week’s latest week. In April 2020, claims fell to 6.149 million from an all-time high.