March inflation report, first to show impact of war, is in line with expectations

NEW YORK, April 10 (Reuters) – U.S. consumer prices rose 3.3% from a year ago in March, data showed, giving investors a first glimpse of the impact on prices of the U.S.-Israeli war against Iran.

The Consumer Price Index rise was in line with the expectations of economists polled by Reuters and was up from 2.4% last month. The index rose 0.9% from February, in line with the Reuters estimate, after rising 0.3% the previous month.

Core CPI, excluding volatile food and energy prices, rose 0.2% from February, beating the 0.3% estimate, and rose 2.6% from a year earlier, also beating the estimate. 

The report Friday morning is being closely watched as it is the first to reflect the impact of the war, which has driven a large rise in crude-oil prices and sparked investor concern about inflation down the road.

MARKET REACTION:  

STOCKS: U.S. stocks were mixed after the report. The Dow Jones Industrial Average was down 0.2% and the Nasdaq Composite was up 0.4%.

BONDS: U.S. Treasury yields were also slightly higher. The  yield on benchmark U.S. 10-year notes was up 1 basis point at 4.30%.

FOREX: The U.S. dollar fell, with the dollar index dropping 0.2% to 98.6.

COMMENTS

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK:

“The key here is the core rate, which actually came in a little bit lower than we were looking for. The top line was hotter than we were looking for and on a yearly basis.

“So, while these numbers are not overly worrisome at this time, they do not include the full effects of the energy crisis.

“Moving forward, obviously we should expect more increases in inflation, but the key is the core rate which was cooler than expected suggests that energy prices eventually will work their way into the system, and they’ll show up later on. But for now, inflation remains elevated and sticky.”

ALEXANDRA WILSON-ELIZONDO, GLOBAL CO-CIO OF MULTI-ASSET SOLUTIONS, GOLDMAN SACHS ASSET MANAGEMENT, NEW YORK: 

“The market was braced for a hot print, so today’s inline number is a slight relief. However, it may be the best headline inflation number we see for a while as it may only partially capture the full force of the Iran conflict, which sent U.S. crude and U.S. gas up 70% at peak.

“With input costs globally surging to their highest levels since Covid, the next print may tell a different story, at least at the headline level. That said, the U.S. economy is far less oil-intensive than it was in the 1970s, and a 10% sustained rise in oil adds only about 5 basis points to core.

“Wage growth has decelerated to levels consistent with the inflation target, and long-term inflation expectations remain anchored. We believe the Fed will look through the energy-driven noise so long as these factors hold. The Fed has room to be patient, and every reason to do so. Today’s number buys the Fed time, but the real test lies ahead.”  

MARC CHANDLER, CHIEF MARKET STRATEGIST, BANNOCKBURN GLOBAL FOREX, NEW YORK:

“I think that the bar to a Fed change later this month is very high, and the CPI was largely in line with expectations.” 

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN: 

“Although I was braced for a jump in the headline CPI number due to higher gasoline prices, it was still startling to see it in print. There are no signs, yet, that high energy prices are seeping into core inflation. That could be a process that plays out over time as companies absorb the brunt of the blow, at least initially. Perversely, consumers cutting back on other discretionary items could push core inflation lower instead of higher.”

(Reporting by Stephen Culp, Siddarth S, Hannah Lang, Chuck Mikolajczak; editing by Colin Barr)