In March alone, consumer prices climbed 0.6%. That was more than expected, as well as the largest increase since August 2012.
Stimulus sugar rush or long-term inflation?
The question remains: Is this a temporary sugar rush from stimulus or the start of longer-term inflation that could eat into corporate profits? We don’t have those answers yet.
But it’s important to note the context of the year-over-year comparisons, as prices pulled back significantly after the pandemic hit the United States in March 2020 and shutdowns began.
And because of the historical comparison, inflation will seem to rise rapidly into mid-year and add to the narrative that the Fed isn’t seeing the inflation risk. But prices increases will moderate in the second half of the year as historical comparisons will be more favorable, said Action Economics’ chief economist Mike Englund.
“In our estimation it would be a mistake for policymakers, investors and firm managers to conclude that there is about to be a sustained and significant breakout higher in the overall level of prices that results in diminished consumer purchasing power and thinner profit margins over the medium to long term,” said Joseph Brusuelas, chief economist at RSM US, in a note to clients.
The Fed has repeatedly said that inflation would need to run above its target of around 2% for a while, and that other factors, including a recovery of the labor market, were also key to changes in monetary policy.