Biggest Impact On Inflation Is Here… Sort Of

We got the hotly anticipated March CPI report on Wednesday. It wasn’t anything to write home about. This was only expected to be the start of higher inflation. The peak won’t be until this summer after the US hits heard immunity. Specifically, month over month headline CPI was 0.6% which rose 2 tenths from the prior month and beat estimates by 1 tenth. The 10-year yield is currently at 1.55% which is about 22 basis points off its high this year. The bond market wasn’t impressed by this slight beat. Furthermore, core monthly CPI was 0.3% which was up 2 tenths from February and beat estimates by 1 tenth.

On a yearly basis, base effects played a strong role in the increase. Headline CPI rose from 1.7% to 2.6% which beat estimates by 1 tenth. Core CPI was up from 1.3% to 1.6% which met estimates. Core CPI is still below the Fed’s target. That’s remarkable given the extremely high readings in the prices indexes in the ISM and Markit monthly PMIs. If you listen to public companies, they sound nothing like the core CPI reading. Everyone is talking about higher costs. 1.6% core inflation is miles away from what we are seeing in the real world.

As you can see from the chart below, energy drove overall inflation higher. Energy inflation was 13.2%. Energy commodities had a massive 22% increase. It will be interesting to see next month’s reading. Remember, in April 2020 oil prices went negative temporarily.

Food inflation was 3.5%. Food away from home inflation was 3.7%. This was driven by limited-service meals and snacks which had 6.5% inflation. Full-service meals and snacks only had 3.2% inflation. That will spike in April because people are starting to have normal in-person meals. On April 19th in NYC, the curfew for dining will extend 1 hour to midnight. The curfew will be 1 AM for catering. There won’t be any curfews by May if the vaccination process goes well.

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