The March U.S. consumer price index (CPI) report will provide the latest update on inflation as the economy recovers from a pandemic-induced recession.
The median forecast calls for a 0.5% month-over-month increase in CPI in March, accelerating slightly from February's 0.4% clip. Core CPI, which excludes food an energy, is expected to rise by 0.2%, versus a 0.1% rate previously.
Over the past 12 months, the CPI probably rose 2.5%, faster than the 1.7% increase reported last month.
Consumers are already expecting higher inflation as the cost of medical care and home prices rise, according to a survey by the Federal Reserve Bank of New York conducted in March.
But will the Federal Reserve allow inflation to get too hot before tightening monetary policy? Some analysts think Fed risks falling behind the curve, a possibility traders may adjust to sooner rather than later.
- “The Fed will wait for hard evidence of non-transitory inflation before acting; markets can’t wait for that,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics.
- “Risk is an acceleration in economic growth and inflation of a magnitude economists/the Fed are totally unprepared for,” according to an April 9 report by Bank of America. “In our view, the reality is markets will not wait for the Fed.”
Central banks everywhere are grappling with similar conundrums as the global economy recovers from the deep economic dislocation from the coronavirus.
Some central banks in emerging markets have raised rates this year to combat rising inflation.
“Inflation fears will raise Treasury prices and weaken the dollar to some extent, though if other countries follow suit the effect might be limited," wrote Frances Coppola, CoinDesk columnist, in an email. "Traditional inflation hedges and high-yield assets should do well.”
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