March Inflation - Hot Reading Incorporates Russia/Ukraine

Consumer prices rose 8.5% in March marking a fresh 40-year high and bolstering expectations that the Fed will raise interest rates by 0.50% in May.  Many observers believe today’s CPI reading could mark the peak, capturing rising energy and food costs following Russia’s invasion of Ukraine.  Additionally, we have now annualized the last of easier prior year comps with April 2021 marking the initial leg up in this inflationary cycle.  Meanwhile, the Fed has shifted tone and trajectory to more hawkish policy in an effort to reign in elevated inflation levels.  Risks that heightened levels of inflation could set the stage for a recession are growing.  Higher prices continue to threaten consumer demand – a key driver of U.S. economic growth – and/or the Fed could overcorrect as it endeavors to implement tighter policies.  Barring a Fed misstep, we believe the odds of recession in the next twelve months remain low.

• Consumer prices (CPI) increased 8.5% year-over-year.  In March, the consumer price index (CPI) increased 8.5% compared to the same period a year ago.  Expectations ranged from 8.2% to 8.6% with a median of 8.4%.  Core CPI (excludes food and energy) increased 6.6% year-over-year.  While price increases were broad-based, energy costs (+32%) and new and used vehicles (+13% and +35%) were among the larger contributors to the year-over-year change.
• Consumer prices (CPI) increased 1.2% month-over-month.  In March, consumer prices as measured by CPI increased 1.2% compared to February, marking acceleration from a 0.8% increase last month – this is the Ukraine effect.  Expectations ranged from 0.9% to 1.4% with a median of 1.2%.  Energy costs (+11%), including gasoline (+18%) and fuel oil (+22%) were the primary drivers, while used car and truck prices cooled by about 4% – the biggest single month drop since 1969.