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OpinionComment
Clara Cheong
Clara Cheong

Macroscope | March data shows US inflation woes could soon be at an end

  • Even as the conflict in Ukraine continues and weighs on global markets, there are signs US inflation has peaked or will soon peak
  • Energy and food inflation are high but there is good reason to believe the worst is over

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A CarMax lot in Gaithersburg, Maryland, holds hundreds of used vehicles on April 12. Supply chain disruptions have led to shortages of new and used vehicles that have driven up inflation, but there are signs that inflation in the United States has peaked or is near peaking. Photo: AFP
Clara Cheong

Inflation, which has been missing for a decade, has seemingly returned with a vengeance. It now has the full attention of central bankers and investors across the world and continues to be a key driver of price action in markets.

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US headline inflation came in at 8.5 per cent year on year in March, a level not seen since the early 1980s. While the breakdown shows a broad-based gain across food, energy, core goods and core services, inflation in energy prices was the biggest contributor to the month-on-month increase.
This is not surprising given how Russia’s invasion of Ukraine has caused commodity prices to stay elevated. While headline inflation was slightly above consensus, core inflation in the United States came in at 6.5 per cent year on year for March, just missing expectations. This was largely attributable to a decline in used car prices but also a mild slowdown in shelter categories.

With the global supply chain issues easing and energy prices normalising at the beginning of the year, it was expected that inflation would also moderate. However, the ongoing conflict between Russia and Ukraine, as well as its impact on global commodity markets, has delayed the peak in US inflation.

Bags of rice are stacked on a pallet at Restaurant Depot in Alexandria, Virginia, on April 13. US consumer prices have climbed 8.5 per cent for the year ending in March, the highest since 1981. Photo: EPA-EFE
Bags of rice are stacked on a pallet at Restaurant Depot in Alexandria, Virginia, on April 13. US consumer prices have climbed 8.5 per cent for the year ending in March, the highest since 1981. Photo: EPA-EFE

Having said that, this does not change our fundamental view that inflation should glide lower throughout the course of the year, especially given that the key distinction in this period of inflation is that it is a supply-driven shock that is effecting both energy and core goods prices. These components are both more transitory in nature than core services inflation, which is stickier.

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This is why we think the path is lower from here, starting with the key drivers within the transitory inflation bucket.

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