Market Wire - Inflation Hits Another Four-Decade High, But Shows Signs of Peaking

Karl Schamotta, Chief Market Strategist: Karl.Schamotta@corpay.com

US consumer prices hit another four-decade high last month as the conflict in Ukraine sent energy costs soaring. According to data released by the Bureau of Labor Statistics this morning, the consumer price index climbed 8.5 percent in March from the same period last year, up a seasonally-adjusted 1.2 percent from February. This was the biggest annual jump since 1981.

Jumps in gas, shelter, and food were - again - the largest contributors to the increase, with gasoline alone responsible for more than half of the headline growth. 

But underlying demand showed signs of softening. With highly-volatile food and energy components excluded, core prices rose 6.5 percent year-over-year, up 0.3 percent over the prior month. This was lower than the 0.5 percent expected in markets, with a 3.8 percent month-over-month drop in used car prices helping to drag the measure downward. 

Implications for the Federal Reserve’s near-term trajectory are limited, but 10-year Treasury yields are falling and the dollar is trading on a weaker footing as investors lower long-term rate expectations. 

According to a Federal Reserve survey published Monday, consumer inflation expectations increased again in March, with respondents bracing for a 6.6 percent increase in prices over the next year - up from 6.0 percent in February. But at the three-year horizon, expectations ticked down, from 3.8 percent to 3.7 percent, suggesting that the public believes central banks will ultimately succeed in getting inflation under control.