The rise in the March core CPI was driven largely by much higher hotel and motel rates, reflecting the recent recovery in business and leisure travel, including a boom in foreign tourists taking advantage of the recent slide in the value of the U.S. dollar.
The New York and San Francisco Fed banks reported higher hotel occupancy rates and "higher revenues per room," the Fed report said. "Bolstered by foreign visitors, Florida recorded high passenger counts on cruise lines and robust bookings at theme parks."
Energy costs rose 4 percent in March. Excluding the more volatile food and energy costs, inflation rose 0.4 percent, the most in more than two years.
(Marcio Jose Sanchez -- AP)
Consumers also paid higher prices for transportation, education, food and beverages.
Both the CPI and core CPI have risen at a much faster seasonally adjusted annual rate in the first three months of this year than they did during all of last year.
The CPI rose at a 4.3 percent rate in the first quarter, compared with a 3.3 percent increase for all of 2004. The core CPI rose at a 3.3 percent rate in the January-through-March period, up from a 2.2 percent rise for all of last year.
Some analysts said that acceleration shows that the Fed's actions have failed to keep inflation under control.
The report "confirms the Fed is way behind the curve on inflation," said Peter D. Schiff, president of Euro Pacific Capital Inc., a brokerage firm. He said inflation will continue to rise this year as higher interest rates cause rents and car prices to rise, while a falling dollar fuels higher prices for imports.
But DiClemente said he thinks inflation will remain contained. "I'm optimistic about how this will play out."