The bad news: Consumer prices have risen 8.5% in the last year, an increase rate that has not been seen for more than 40 years. The good news: This number has probably reached as high as it is about to reach and will soon begin to decline.
What they say: Inflation “has probably peaked”, Bank of America analysts said on Tuesday. Their counterparts in Capital Economics agreed, saying the 8.5% rate would “mark the top” for the series. How it works: Metric inflation, which rose 1.2% in March alone, is largely due to energy prices. Core inflation, excluding food and energy, was relatively subdued, rising just 0.3%.
Good news is likely in the forthcoming April inflation report: The price of oil has fallen to $ 94 a barrel, from a high of $ 124 on March 8. Gas prices followed the fall in oil prices. The US average price of $ 4.08 is down 6% from $ 4.34 in early March, per GasBuddy.
Be smart: Key results are important when looking at inflation figures on an annual basis.
We are now nearing the end of a period in which we are comparing prices to an artificial recession from the pandemic – and we will soon be comparing prices to artificially high levels thanks to global supply constraints.
The other side: Any statement that inflation has peaked is necessarily “temporary at best,” RSM’s Joe Brusuelas wrote in a research note, given the volatility and unpredictable price of oil in times of war.
If Europe stops importing oil and gas from Russia for any reason, this in itself could push energy prices up again.
What follows: The Fed will continue to raise interest rates year-round. The central bank is trying to ignore volatile food and energy prices, but core inflation, at 6.7%, is well above the Fed’s 2% target.
Higher interest rates have already begun to appear in the mortgage market, where 5% mortgages are now common. This will help slow down house price inflation.
The bottom line: We can move from inflation that is high and rising, to inflation that is high and falling. This is better, but still not great.
