US inflation rose further in March, boosting expectations for Fed’s 0.5% rate hike next month

The US inflation continued to rise in March, driven mainly by record prices of fuel, surging food prices as Russia and Ukraine are the major world exporters of wheat and sunflower oil and strong rise in rental housing prices.

The consumer prices rose 1.2% in March, from 0.8% rise previous month, making the biggest monthly gain in nearly 17 years, while annualized inflation accelerated 8.5% in March, in the biggest year-on-year rise in over four decades, from 7.9% in February and beat forecast for 8.4% increase.

So called core CPI, which excludes volatile food and energy components, rose 0.3% m/m in March following 0.5% rise previous month, while annualized core inflation increased by 6.5% in March in its largest advance in almost 40 years, after rising 6.4% in February.

The war in Ukraine destabilized global energy sector, as Russia is the world’s second largest oil exporter and US has banned imports of Russian oil, liquefied natural gas and coal, boosting fears of global supply shortages that strongly lifted energy prices.

Strong inflation readings in March, as consumer prices rose over four times above the Fed’s 2% target, add to signals that the US central bank would go for a 50 basis points rate hike in the next month’s policy meeting, after 25 basis points rate increase in March, the first hike in over three years.

High inflation and Fed’s firmly hawkish stance boost concerns about the US entering recession, although many economists remain more optimistic, expecting that March’s figure marks the peak and the economy would continue to grow, but at the same time warn that inflation may hold above 2% target for extended period of time, at least through 2023.

With threats of escalating conflict in Ukraine and new variety of sanctions on Russia being on the table, commodity prices are expected to remain elevated, along with rising rents for housing and resurgence of coronavirus infections in China that would put more strains on global supply and continue to fuel inflation in coming months.