Why more inflation pain might be ahead
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Illustration: Sarah Grillo/Axios
March's inflation numbers had one story: the Iran war-driven energy price surge that almost single-handedly explains the fire-hot report.
- The worst of the inflation surge in other categories — airfares, groceries and more — is yet to come.
Why it matters: The report captures the first wave of the Iran war's inflationary fallout. Energy shocks transmit through the economy in a sequence that will take more time to play out.
- It means that the squeeze on American household budgets is just starting, with huge uncertainty about whether price increases force a pullback in spending that tips the broader economy into a slowdown.
By the numbers: The CPI overall rose 0.9% last month, the largest increase since June 2022.
- Gasoline prices surged 21% — the biggest monthly jump in 59 years of records! — and accounted for nearly three-quarters of the total gain.
- In the 12 months ending in March, CPI was 3.3% — the highest since May 2024, after being up 2.4% in February.
The intrigue: The core reading, which strips out food and energy prices, was far more benign.
- On a monthly basis, core CPI rose 0.2%, the same pace as the previous month (unrounded, March's gain was actually slightly smaller).
- It was 2.6% in the 12 months ending in March, ticking up from 2.5%. Core CPI was running at an annualized rate of 2.9% over the last three months, cooling down from a 3% pace in February.
What they're saying: "We think it is too early for the market to run with today's positive signal from the core CPI given the strong start to the year for consumer prices — along with the forming clouds that will surely rain on core inflation in coming months," economists at TD Securities wrote in a note.
- The economists noted that rising airfares and a bounce back from soft shelter costs last fall will boost April's core CPI.
The big picture: Under the hood, the energy shock has not registered in other, non-energy-related industries that are bracing for impact.
- Airline fares surged 2.7% in March, picking up from the previous month's 1.4% increase. But it's likely that prices might rise further as airlines continue to pass along higher jet fuel costs to fliers.
- Food prices were flat last month, though farmers and food manufacturers have warned about the effects from shortages of a key type of fertilizer as a result of the effective closure of the Strait of Hormuz.
Flashback: The last time inflation accelerated as quickly as it did in March, the economy was also grappling with the effects of an inflation shock.
- That experience showed that energy pass-throughs are rarely contained to a single month. Russia's invasion of Ukraine in early 2022 sent gasoline prices surging, which bled into higher airfares, grocery prices and other goods in subsequent months.
- A key difference is that the Ukraine war shock landed on an already-overheated economy that was struggling with pandemic-related supply chain challenges.
- This time, consumers have faced about five years of rapid price increases, with no guarantee that they will be as capable — or as willing — to absorb the higher costs.
