Consumer prices rise more than expected

Consumer prices rose higher in March, given a boost by a strong economic recovery and a year-on-year comparison with a time when the Covid-19 pandemic would put the US economy on edge.

The consumer price index rose by 0.6% from the previous month, but by 2.6% from the same period a year ago. The year-on-year profit is the highest since August 2018 and was well above the 1.7% recorded in February.

The index is expected to rise by 0.5% monthly and by 2.5% from March 2020, according to Dow Jones estimates.

Fuel prices made the largest contribution to the monthly increase, which rose by 9.1% in March and accounted for about half of the overall CPI increase. Petrol is 22.5% higher than a year ago, which is part of a 13.2% increase in energy prices. Foods also rose higher, by 0.1% for the month and 3.5% for the year.

Markets showed a modest response to the news, while stock futures were lower for the morning, but still indicating a negative revelation. Government bond yields are mostly flat.

The large increase on a year-on-year basis came as a result of what economists call the ‘base effect’ or the lower level used to compare. In March 2020, the government had just embarked on a massive strike of U.S. businesses that would eventually send more than 22 million Americans to the unemployment line.

The core CPI, which excludes volatile food and energy costs, rose 0.3% monthly and 1.6% year-on-year.

While inflation figures appear to be high, many economists as well as policy makers at the Federal Reserve expect the increase to be temporary. April is also likely to show a sharp rise, but then the numbers are expected to decline as the worst months of the close of the data comparisons fall.

Fed officials have said they will not adjust the policy based on short-term inflation readings. Jerome Powell, chairman, said in an interview on CBS’s ’60 minutes’ on Sunday night that he does not expect any interest rate hikes this year.

Yet markets have increased higher growth and inflation, with government bond yields reaching their highest levels since the pandemic. The economic reopening coupled with unprecedented levels of public policy support are contributing to the inflationary environment.

Fed officials see growth of about 6.5% this year, which would be the fastest increase since 1984.

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