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Consumer inflation in March is expected to be the warmest since 1981

A customer selects food from a freezer in a supermarket on January 12, 2022 in New York City.

Liao Pan | China News Service | Getty Images

Consumer price inflation in March is expected to have risen the most since December 1981, driven by higher food costs, rising rents and runaway energy prices.

The consumer price index will be released on Tuesday at 8:30 ET, and economists expect a monthly jump of 1.1% and a year-on-year gain of 8.4%, according to the Dow Jones. This is to be compared with the February increase of 0.8% or 7.9% year over year, the highest since the beginning of 1982.

“It’s going to be ugly,” said Mark Zandi, chief economist at Moody’s Analytics. “It’s a perfect storm – Russian invasion, rising oil prices, China stalling, further supply chain disruptions, accelerating wage growth, vacancies. Just a kind of distorted mess leading to painfully high inflation. We are fighting through two massive global It would be hard to imagine that we did not suffer from higher inflation. “

Core inflation, excluding food and energy, is expected to rise by half a percent – the same as February – with a year-on-year gain of 6.6%, up from 6.4% according to the Dow Jones.

“The good news is that it looks set to peak because of oil prices,” said Diane Swonk, chief economist at Grant Thornton. Oil prices rose shortly after Russia invaded Ukraine in late February, peaking at $ 130.50 per barrel for West Texas Intermediate oil futures in early March. That price has dropped to around $ 94 per barrel on Monday.

Gasoline prices also rose, reaching a national average of $ 4.33 per gallon unleaded on March 11, according to AAA. That price Monday was $ 4.11 per gallon.

“The problem for the Fed is the expansion of inflation from goods to services, and also because the prices of used cars can rise again,” Swonk said. “Supply chain problems do not go away. They get worse.”

Just on base effects, economists say that this month or next month may be the peak of inflation. Zandi’s overall CPI will fall to 4.9% by the end of this year.

The Federal Reserve is expected to tighten policy aggressively to curb the hottest inflation in four decades. Markets expect an increase of half a point in May, and economists say that a warm inflation report may also bring an increase of half a point in June.

“The Fed is on the right track. It’s at least a half percent increase and the balance sheet reductions are starting,” he said.

The Fed first raised interest rates by a quarter of a point in March, after lowering the Fed funds target rate to zero in early 2020.

Tom Simons, money market economist at Jefferies, expects to see the Fed raise interest rates by 50 basis points at the May 3 meeting, and he said the CPI should not change that. “If it comes in dramatically higher than expected, which I do not think it will, it will start talking about a 75 basis point hike or a midterm hike,” he said. “That’s pretty much nonsense in my opinion.” A base point corresponds to 0.01%.

Simons said energy prices in the CPI are expected to jump 18% in March. “The first half of March was a particularly acute post-Russian invasion. Food prices are a similar story, but not near to the same extent … Housing again will be a pretty significant factor,” he said.

He expects that the owners’ corresponding rent, or the price of a house in the CPI, will increase by around 0.5%, while the rent should increase 0.6% month by month. Expenditure on shelter is an area that is expected to continue to rise. That would put shelter, which is a third of the CPI, up by 4.6% year over year.

Swonk said the increase in housing costs is the highest since the early 1990s and they may continue to rise. “I think there’s a risk it’s coming on the hot side,” she said.

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