The Hunt Is On For Clues That Inflation Has Peaked

EDITOR'S NOTE: The market’s response to the March CPI report started with a strong rally only to end the day in the red. Response to yesterday's PPI report was a bit more positive, the broader market closing up over 1%. At the center of this surge is the notion that we’ve somehow reached “peak inflation.” Bank of America analysts announced this on Tuesday; their opinion aligned with research firm Capital Economics, saying that the 8.5% CPI figure would “mark the peak.” What they’re focusing on is the difference between the headline figure, spiking 1.2% in March (month over month), versus the “core inflation” figure minus food and energy, which rose a modest 0.3%. Energy was the big inflation driver. But here’s something to think about: how certain can anyone be that energy prices will suddenly begin to ease, especially if you factor in the impact that Russia has on the global energy economy? Also, what are we to make of the US money supply which still has too many dollars chasing too few goods? And finally, can the Fed truly, and for once, pull off a “soft landing” despite its aggressive rate hike program? 

The hunt is on for clues that inflation has peaked, Hope and Nathan write. Trouble is — the clues point to a jumble of entangled economic factors.

State of play: Prices for everything — electricity, cereal, airline tickets — rose 8.5% last month from a year ago, according to the Consumer Price Index for March, which was released today.

• Stripped of volatile food and energy prices, yearly core inflation reached 6.5%.

How we got here: Three rounds of stimulus checks that helped fuel historic consumer demand, while companies struggled with a shortage of workers to meet it during the pandemic.

• Ensuing supply chain breakdowns and higher costs to get around them added fuel to the fire, while Russia's war on Ukraine disrupted energy supplies.

Why it matters: Prices are rising unevenly, depending on how companies have responded to the tangled mess. Some things like cars may stabilize while daily essentials like food could continue to see higher price tags until more of the mess gets resolved.

By the numbers: Gasoline, shelter and food prices were the largest contributors to the overall rise in CPI (see the following chart).

• Monthly core inflation, stripped of food and energy prices, slowed for the second month in a row — from 0.5% (from January to February), to 0.3% (from February to March).
• Housing costs rose 5% from last year, while growing at a 0.5% monthly rate.

What to watch: Oil prices have been easing and average gas prices fell for the third straight week in the first full week of April, according to GasBuddy, as gas stations are forced to compete.

• On the other hand, with housing prices continuing to skyrocket, shelter prices will likely continue to grow at an elevated pace.
• Food prices, which have picked up faster, will likely continue to grow for the rest of the year as companies pass on their own higher costs due to labor shortages and transportation and logistics issues.
• New and used car prices could level off, rather than drop, as declining consumer demand and historically low inventories keep each other in check.

The big picture: "[E]levated inflation will slow consumption, it will slow the economy and it ultimately will impact the employment/hiring dynamic in this country," Rick Rieder, BlackRock’s Chief Investment Officer of Global Fixed Income, wrote in a note today.

Data: BLS; Chart: Baidi Wang/Axios

Originally published by Axios.