Inflation Rate Hits an Eight-Year High : Economy: Consumer prices rose 0.5% in March. For the first quarter, costs are up at an annualized rate of 8.5%.

Consumer prices surged an unexpectedly sharp 0.5% in March, pushing the inflation rate for the first three months of 1990 to its highest level in almost eight years, the government reported today.

The Labor Department blamed last month’s increase in the Consumer Price Index in large part on a jump in housing costs and another surge in new clothing prices, although there were widespread increases in a variety of retail areas.

The 0.5% rise matched February’s gain and followed a 1.1% increase in January.

Private economists were caught by surprise by the brisk March advance, which they termed a disappointing sign that inflation is not slowing as they had hoped. Many analysts had been looking for a modest increase of around 0.2%.

“The CPI shows an entrenched, unacceptably high rate of inflation,” said Allen Sinai, chief economist of the Boston Co. “The inflation result was dangerous and potentially devastating for financial markets and the economy.”

Through the first three months of the year, consumer prices have risen at an annual rate of 8.5%. That is the fastest quarterly increase since the spring of 1982 and is far above the 4.6% price increase for all of 1989.

Today’s bad inflation news was likely to strengthen the resolve of the Federal Reserve to resist pressures from the Bush Administration to lower interest rates. Sinai predicted that if inflation does not retreat soon, the Fed may even begin pushing interest rates upward, something it has not done for over a year, in an effort to dampen price pressures.

“The message is that it may take more pain, more restraint on the economy, to get inflation down to acceptable levels,” Sinai said.

In the inflation report, housing costs climbed 0.5% in March, pushed upward by a sharp 1% rise in the cost of owning a home. Homeowners’ cost had actually fallen 0.1% in February.

The advance in housing costs accounted for almost one-half of the overall March increase.

Higher clothing costs contributed to more than one-fifth of the increase as apparel prices rose by 1.6%, following a record 3.3% increase in February.

Many economists had been looking for prices to moderate in March, aided by lower food and energy costs.

Energy prices were down during the month, dropping by 0.8%, pushed lower by falling gasoline prices and another big drop in home heating oil costs.

Food prices rose 0.4% during the month, slightly better than the 0.5% increase in February, as a big drop in fruit and vegetable prices offset increase in other areas.

Prices excluding the volatile food and energy sectors were up sharply as well in March, climbing 0.7%, the fastest increase since a 0.8% rise in December. Economists believe this core rate is a better gauge of underlying inflationary pressures.

One reason the 0.5% March increase took analysts by surprise was that it followed a more benign report on inflation at the wholesale level. The government reported last Friday that prices one step short of retail actually fell by 0.2% in March.