March CPI: Inflation could be nearing its peak
After hitting another 40-year high, U.S. CPI inflation is likely near the peak, with stabilizing commodity prices and slower demand for durable goods. Nonetheless, the Fed will need to engineer a slowdown to bring prices to target—creating a challenged environment for markets going forward.
Price movement driving CPI inflation
Month-over-month, January 2000 – present
Skyrocketing food and energy prices pushed United States CPI inflation to 8.5% y/y in March, another 40-year high. Barring any additional geopolitical or COVID-19 supply shocks, there are tentative signs that inflation may be near its peak. Though it may take many quarters for prices to normalize to the U.S. Federal Reserve’s (Fed) inflation target.
While price pressures in services and non-durable goods were elevated, March saw deflation in durable goods, driven by a fall in used car prices, which suggests softer demand is outweighing limited supply. Additionally, higher commodity prices stemming from the war in Ukraine passed through, as expected, to U.S. consumer prices. However, WTI oil has moderated to $100/barrel in April, down from the peak of $130/barrel in March, which suggests energy may exert less upward pressure to headline CPI inflation in the coming months.
Despite these signals that inflation could be nearing its peak, CPI may still be above 5% by the end of 2022, as geopolitical conflicts and Asia lockdowns may prevent the full healing of supply chains. Therefore, aggressive Fed action is needed. Though equities are expected to have positive return this year, as the Fed tightens financial conditions to slow growth, active management will remain paramount for selecting companies that can maintain pricing power in a challenged environment.
Wall Street Journal Custom Content is a unit of The Wall Street Journal advertising department. The Wall Street Journal news organization was not involved in the creation of this content.
Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results and should not be relied upon to make an investment decision.
The information presented has been derived from sources believed to be accurate; however, we do not independently verify or guarantee its accuracy or validity. Any reference to a specific investment or security does not constitute a recommendation to buy, sell, or hold such investment or security, and does not take account of any investor’s investment objectives or financial situation and should not be construed as specific investment advice, a recommendation, or be relied on in any way as a guarantee, promise, forecast or prediction of future events regarding an investment or the markets in general. The opinions and predictions expressed are subject to change without prior notice.
Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc.
For Public Distribution in the United States. For Institutional, Professional, Qualified and/or Wholesale Investor Use Only in other Permitted Jurisdictions as defined by local laws and regulations.
Principal®, Principal Financial Group®, and Principal and the logomark design are registered trademarks of Principal Financial Services, Inc., a Principal Financial Group company, in the United States and are trademarks and services marks of Principal Financial Services, Inc., in various countries around the world.
Principal Global Investors leads global asset management at Principal.®