The first major inflation reading after the Iran war began showed a jump in energy prices that pulled up overall inflation but didn’t filter through to core inflation.
It’s still likely to keep the Federal Reserve on hold.
The Consumer Price Index (CPI) released Friday showed prices jumped 3.3% in March, pushed up by energy prices, which spiked nearly 11%. The increase in energy prices was led by gasoline, which rose 21.2% and accounted for nearly 75% of the month’s increase. On a headline basis, prices rose 2.4% in February.
On a “core” basis, which excludes volatile energy and food prices and is the best long-run predictor of overall inflation, CPI inched up 2.6%, after rising 2.5% in February.
“A not unexpectedly hot headline but more tame core,” Peter Boockvar, independent economist and strategist of the Boockvar Report, said in a note. “That said, we have to understand that it will take months for the higher energy prices, along with plastics, packaging, etc… to flow into the core rate.”
Read more: What is inflation, and how does it affect you?
Joe Brusuelas, principal and chief economist for RSM, said he expects it will be another two to three months before the Fed can ascertain if rising oil and energy prices are bleeding into core service and goods inflation, as well as the direction of inflation expectations. For now, he projected, the Fed will keep interest rates on hold.
“Despite the oil and energy shock that is now working through the US economy, the Federal Reserve can, will and should look through the early days of a supply shock,” Brusuelas said. “The appropriate policy pathway currently is simply patience. Neither rate cuts nor rate hikes make sense at this time given the rapidly changing risk matrix that the central bank is facing.”
Household product maker WD-40 said Thursday night that geopolitical turmoil in the Middle East has contributed to higher costs for certain petroleum-based specialty chemicals and other inputs, which will affect product costs. The company said there’s typically a 90-to-120-day delay before changes in the cost of raw materials are reflected in the cost of products sold, due to production and inventory lifecycles.
Read more: How oil price shocks ripple through your wallet, from gas to groceries
A new analysis from the Dallas Federal Reserve looked at how a closure of the Strait of Hormuz over different time frames could impact the price of West Texas Intermediate crude oil (CL=F) and thus inflation.
The research found that if the closure ended after one quarter, the effect on core inflation would reach 0.8 percentage points at an annualized rate in April but then fluctuate as it diminishes.