Climb And Punishment

Image source: Andrey_Kuzmin, Theus, and pashabo - shutterstock

What's going on?

Data out on Tuesday showed that US consumer prices rose by the most in more than 40 years last month, but at least there are signs that its all downhill from here.

What does this mean?

This was the first inflation report to take into account both the Russian invasion of Ukraine which has driven energy prices to dizzying highs and Chinas latest wave of lockdowns, which have taken their toll on already-hampered supply chains. So of course the US government had pre-empted the report by warning that the number would be extraordinarily elevated. It wasnt wrong: US consumer prices were 8.5% higher in March than they were the same time last year up on Februarys 7.9%, and the biggest jump since December 1981 (tweet this). Worse still, wages just arent keeping up: inflation-adjusted earnings fell 2.7%.

Why should I care?

For markets: Is inflation peaking?
This is the 13th-straight month that inflation has been above the Federal Reserves (the Feds) longstanding target of 2%, but there was a silver lining: monthly core inflation which strips out volatile items like food and energy came in at its lowest since September. That matters because some economists see it as a sign that inflation might finally be slowing down, which has got traders betting that the Fed wont raise interest rates by quite as much as they thought.

The bigger picture: Inflation > climate change.
Gas prices drove half of the monthly uptick, so the US government is doing its bit to get those prices at the pump down: it announced plans on Tuesday to allow the sale of gas with higher ethanol content, which sells at around a 15% discount to regular gasoline. That should reduce reliance on foreign oil supplies, albeit with a catch: its a dirtier blend, so the government is waiving anti-pollution rules to make it happen.

Originally posted as part of the Finimize daily email.

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