The CPI report beat estimates with March gains of 0.6% for the headline and 0.3% for the core. The March increases rounded down from respective gains of 0.620% and 0.339%. The headline CPI was lifted by a hefty 5.0% March surge in energy prices and a 0.1% uptick for food prices. Gasoline prices jumped another 9.1%, after gains of 6.4% in February and 7.4% in January.
Firm core prices reflected moderately larger than expected gains across various components. Tobacco prices rose 0.6%, as seen last month, after a 1.8% surge in January. We saw a 0.5% rise for used car prices, after -0.9% declines in each of the prior three months. We saw a 0.4% bounce for airline fares, after declines of -5.1% for February, -3.2% in January and -2.5% in December.
For price restraint, we saw a -0.3% decline for apparel prices after a -0.7% drop, but prior big gains of 2.2% in January and 0.9% in December. New vehicle prices were flat, as seen last month. Medical care services prices rose by a lean 0.1%, after 0.5% gains in the prior two months. Owners’ equivalent rent rose by a moderate 0.2%, after gains of 0.3% in February and 0.1% in January.
The y/y CPI headline gain popped to 2.6% from 1.7% in February, 1.4% in January and December, and 1.2% in both October and November.
The core y/y gain rose to 1.6%, from 1.3% in February, 1.4% in January, and 1.6% over the three months through December.
On a moving average basis, CPI headline gains are trending higher after the sharp pull-back in Q2 of 2020, though core prices remain lean. We have 6-month average price gains of 0.295% for the headline and 0.127% for the core, versus respective 12-month average gains of 0.218% and 0.136%.
We expect y/y CPI gains to set peaks in May of around 3.8% for the headline and around 2.5% for the core. The steep climb in y/y inflation into mid-year will add to the market narrative that the Fed may be under-appreciating upside inflation risks, though y/y gains will moderate into Q3 and Q4 as comparisons become easier.
