The month-over-month (MoM) CPI rate was the largest monthly jump since 2022, with energy alone contributing 0.7 percentage points.
The March U.S. inflation print came as little surprise, with the spike in the headline figure already priced in. The relief, however, was that both monthly and annual CPI increases were slightly below expectations.
Energy, especially gasoline, caused the bulk of the increase following the Middle East oil shock in the aftermath of the U.S.-Iran war, which however, has now been stalled for two weeks.
The initial market reaction was positive, with the stock futures adding to their early measly gain, and bond yields slipping.
Annual CPI Inflation Rate for Select Categories
Source: Bureau of Labor Statistics
The CME FedWatch Tool, which factors in futures market’s expectations regarding interest rate trajectory, shows the odds of a pause (3.50%-3.75%) at 98.4%, up from 97.8% a day ago. The odds of a quarter-point hike dropped to 1.6% from 2.1%.
CME FedWatch Tool
Source: CME Group
Here’s a compilation of the early read from some economists:
- Bloomberg Chief Economist for Financial Products Michael McDonough noted the month-over-month (MoM) CPI rate was the largest monthly jump since 2022, with energy alone contributing 0.7 percentage points. The YoY rate accelerated to the fastest since 2024.
- Renaissance Macro Research highlighted the 0.4% drop in used car and truck prices, the fourth consecutive drop. The firm, however, opined this source of disinflation may not persist as wholesale auction prices have been climbing in recent months. It expects the impact to be felt in consumer prices in the second quarter.
- Northlight Asset Management Chief Investment Officer Chris Zaccarelli said, “The first inflation data from after the war in Iran confirmed what everyone was worried about – the oil shock contributed to an extremely high headline CPI number of 0.9% month-over-month.” Pointing to the tame core number, the strategist said if the supply shock is temporary then the economy can weather this storm and the Fed will have an opportunity to lower interest rates by the end of the year. However, if the inflation shock is more long-lasting they will have no choice but to sit on their hands for the entire year, he added.
- RSM US Chief Economist Joseph Brusuelas thinks businesses will absorb these shocks via thinner margins, passing along costs to consumers and if the war continues via reducing headcount. He, therefore, believes the Fed will be patient to see if the topline energy costs will bleed into core inflation. He also warned about further increases to show up in April due to greater transportation, travel and food costs that are going to impact pricing going forward through the remainder of the year.