U.S. inflation accelerated to the fastest pace in four decades again last month, data from the Bureau of Labor Statistics indicated Wednesday, but a slight retreat in core consumer prices suggests pressures may be easing heading into the summer months.
The headline consumer price index for the month of March was estimated to have risen 8.5% from last year, up from the 7.9% pace in February and the fastest rate since December of 1981. On a monthly basis, inflation was up 1.2%, the BLS said, with both tallies topping Wall Street forecasts.
So-called core inflation, which strips-out volatile components such as food and energy prices, rose 0.3% on the month, and 6.5% on the year, the highest since February of 1991, the report noted, with the annual reading coming in ahead of the Street consensus forecast.
"The Federal Reserve will feel emboldened today to press ahead with its aggressive hiking of interest rates as it looks to combat inflation. While used car prices and other non-essential items have begun to reach their price peak, the headline figures today illustrates how much of this is an energy-related shock," said Hinesh Patel, portfolio manager at Quilter Investors. "Ultimately, this will continue for some time as oil producers remain content with where the oil price currently sits and the war in Ukraine rages on, adding pressure for further sanctions on Russian gas and oil."
White House Press Secretary Jen Psaki, in fact, had warned Americans late Monday to expect an "extraordinarily elevated" level of inflation from last month's reading, thanks in part to the impact on food and energy prices from Russia's war on Ukraine.
U.S. crude futures hit a ten-year high of $123.70 per barrel last month in the immediate wake of Moscow's invasion and the threat of sanctions on energy exports, while wheat and other food prices leaped on reports of damaged crops and grain embargoes linked to the conflict.
“We expect a large difference between core and headline inflation ... reflecting the global disruptions in energy and food markets,” Psaki told reporters in Washington.
- Stock Market Today - 4/12: Stocks Edge Higher As Inflation Data Looms; Treasury Yields, Dollar Climb
Stocks on Wall Street futures extended their early gains following the data release, with the Dow Jones Industrial Average rising 235 points in the opening hour of trading and the S&P 500, which is down 7.4% for the year, gaining 44 points. The tech-focused Nasdaq gained 210 points.
Benchmark 10-year U.S. Treasury bond yields eased to 2.712% while the US dollar index, which tracks the greenback against a basket of six global currencies, fell from a fresh two-year high to 100.16.
The CME Group's FedWatch tool is showing an 87.7% chance of a 50 basis point rate hike in March, but less than a 54.3% chance of follow-on move of the same size in June.
The Atlanta Federal Reserve's GDPNow forecasting tool, a real-time benchmark, suggests U.S. economic growth has now slowed to a 1.1% clip, down from the 7% growth rate recorded over the three months ending in December.
Pantheon Macroeconomics analyst Ian Shepherdson, however, thinks the March reading could mark the peak of this cycle's inflation surge, noting that so-called 'base effects' -- in other words the measurement levels for various components in the inflation basket -- will likely pulling headline readings to 6% by the summer and 3% by the start of next year.
"We are becoming increasingly confident that the surge in core goods prices, both vehicles and other goods, is coming to an end, and is more likely to be followed by absolute declines than a mere levelling- off," he said.
The swing from tight supply to a goods glut could be rapid and dramatic, essentially because the lagged response from the supply chain to the Covid- driven surge in demand is coming on-stream just as consumers want fewer goods," he added.
