Brace For Inflationary Shock - March CPI Preview
Source: seekingalpha.com
TL;DR
- March CPI report due Wednesday could reveal inflation surging past expectations, driven by sticky shelter and services costs.
- Core CPI likely hits 3.7% year-over-year, well above the Fed's 2% target and hotter than February's 3.8%.
- Hot print risks delaying rate cuts, keeping 5.25-5.50% Fed funds rate steady through mid-2024.
- Markets may face volatility as traders slash odds of June cut from 75% to near zero.
The story at a glance
Analyst warns of an inflationary shock in the upcoming March CPI release, spotlighting persistent pressures that could upend Fed rate cut hopes. This preview drops just before Wednesday's data dump, as investors brace for surprises amid cooling-but-not-cooled price trends.
Key moments & milestones
- February CPI: Headline eased to 3.2% YoY from 3.1%, but core accelerated to 3.8% YoY - highest since September 2023.
- Early March indicators: ISM services PMI jumped to 53.4, signaling services inflation rebound.
- Shelter costs: Surged 5.7% YoY in February, now 40% of CPI basket and still climbing.
- Fed's stance: Powell flags sticky inflation; no cuts until "greater confidence" in 2% path.
- Market pricing: June cut odds at 75% pre-data, but hot CPI could erase them.
Signature highlights
- Services inflation, excluding shelter, expected at 4.0% YoY - a 9-month high - fueled by labor shortages and wage pressures.
- Used cars defy trends with +9.5% MoM surge from -0.7% prior, tied to fleet replacement cycles.
- Energy softens with gasoline down 4.5% MoM, but natural gas spikes +16% offset gains.
- Author's forecast table for core CPI components:
| Component | Feb Actual | Mar Est. | Change |
|---|---|---|---|
| Shelter | 5.7% | 5.8% | +0.1% |
| Services ex-Shelter | 3.8% | 4.0% | +0.2% |
| Core Goods | 0.3% | 0.4% | +0.1% |
| Core CPI | 3.8% | 3.7% | -0.1% |
Why it matters
A hotter-than-expected print reinforces inflation's resilience, potentially locking in high rates and squeezing borrowers while boosting savers. It challenges the soft-landing narrative, raising recession odds if the Fed stays restrictive too long. Watch April CPI for confirmation; persistent heat could push first cut to September or later.