Growth in the U.S. economy slowed sharply to a 1.8 percent pace in the winter quarter from 3.1 percent at the end of last year, as budget cuts at all levels of government and a surge in oil prices weighed on the economy, the Commerce Department reported Thursday morning.

The jump in oil prices to over $100 a barrel, coupled with soaring prices for corn, wheat and other commodities, caused a near doubling of the inflation rate to 3.8 percent from 2.1 percent in the fourth quarter of 2010. That meant that consumers had less spending power, causing their contribution to economic growth to decline to 2.7 percent from 4 percent.

While consumers and businesses got zapped by higher inflation, governments faced with unsupportable debts at every level slashed spending. The federal government axed defense spending by 11.7 percent — nearly six times the decrease seen at the end of 2010...