Was March’s eye-popping 8.5% headline CPI figure the highest that we’ll see in this cycle? With high inflation prints in April, May, and June of last year falling out of the year-over-year comparisons over the coming months, there’s a chance that inflation tracks lower from here. That’s especially true if March’s gasoline and energy spikes reverse and used car prices continue to decline (Display).
Yet at the same time, it’s too soon to declare inflation back under control. We’ve been counseling for months to watch the month-over-month inflation numbers. When you do, you can see that the inflationary pressures are still hovering near multi-decade highs—once you strip out energy prices and car prices, which are being driven by different dynamics. The reason? Part of it is housing, but part is also a broader range of goods and services where prices have been rising more rapidly in recent months than in the decades before.
As the Fed hikes rates over the course of the coming months and quarters, those bars will be the ones we’re eyeing to see if the policy is working or if more aggressive action will be needed. They’ll indicate whether the economy’s strong momentum allows for a soft landing or if the Fed’s tightening tips the economy into a recession.