Consumer price inflation is expected to have risen in March, driven by higher food costs, rising rents and runaway energy prices.
The consumer price index will be released Tuesday. Economists expect a monthly jump of 1.1% and a year-over-year gain of 8.4%. February's jump of 0.8%, or 7.9% year-over-year, was the highest since 1982.
Mark Zandi, chief economist at Moody's Analytics, said that it was going to be ugly. It was a kind of scrambled mess that led to high inflation. We are struggling through two massive global supply shocks. It would be hard to imagine that we didn't suffer higher inflation.
Core inflation, which excludes food and energy, is expected to rise by half a percent in March, the same as in February.
Diane Swonk, chief economist at Grant Thornton, said that it looks like it will be the peak because of oil prices. West Texas Intermediate oil futures hit a peak of $130.50 per barrel in early March after Russia invaded Ukraine. The price fell to $94 per barrel Monday.
On March 11, the national average price of gasoline was $4.33 per gallon. Monday's price was $4.11 per gallon.
The problem for the Fed is the broadening of inflation from goods into services and also because used car prices might be picking up again. They are getting worse.
Economists say this month or next month could be the peak for inflation. By the end of the year, Zandi expects the headline inflation to fall to 4.9%.
The hottest inflation in four decades is expected to prompt the Federal Reserve to tighten policy. Markets expect a half point hike in May, and economists think a hot inflation report could bring a half point hike in June.
The Fed is on track. He said it was at least a half percent hike and the balance sheet reductions would begin.
The fed funds target rate was cut to zero in early 2020 and the Fed raised interest rates by a quarter point in March.
The Fed is expected to raise rates by 50 basis points at its May 3 meeting, and the consumer price index should not change that.
The first half of March was particularly acute after the Russian invasion. Food prices are similar but not the same. He said that housing is going to be a significant factor.
Rents should rise 0.6% month-over-month, while owners should see their equivalent rent rise by about 0.5%. Shelter costs are expected to keep rising. Shelter is a third of the consumer price index and is up 4.6% year over year.
Swonk said that the increases to shelter cost are the highest since 1990.
Swonk said there was a risk it came in on the hot side.
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