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The Line: Inflation Keeps Inflating

Gregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.

I know it’s a very cheesy headline, but you try coming up with different ways to keep saying the same thing!

Anyway, consumer prices rose more than expected last month, and are 8.5% higher than a year ago. Surging energy and food costs played a big part in this increase. There was some good news, as core CPI—which excludes energy and food prices—rose less than expected in March. This gives hope that the worst of inflation may be past us now, although you can expect energy prices to keep rising in the short term. The U.S. is not the only country dealing with surging prices, as UK inflation just hit a 30-year high.

Producer prices also kept rising in March, and were also led by energy prices. These reports on consumer and producer prices should lead the Fed to hike rates by 0.50% at their meeting next month, double their initial hike in March. This is good news, as the sooner the Fed can safely bring up short-term rates, the sooner inflation can be contained. I know that some of you will be worried about what this will do to mortgage rates, but remember there is no direct correlation between the Fed’s hikes and the movement of 30-year rates. In fact, expect long-term rates to come down as inflation becomes better contained.

Higher Prices Can't Stop Consumers from Spending

Retail sales rose 0.5% in March, slightly less than expected, but still a pretty good number considering how much prices have been rising. Not surprisingly, the biggest gain was seen at gas stations, where sales jumped 8.9% last month. Solid gains were also posted at general merchandise stores (+5.4%), sporting goods stores (+3.3%), electronics and appliance stores (+3.3%), and clothing stores (+2.6%). Online sales fell 6.4% in March, which was a bit of a surprise. Since consumer spending accounts for 70% of GDP, this report is certainly good news. We’ll get the first read on how the economy did in 1Q22 on April 28.

Jobless Claims Remain Low

Although up from the prior week, initial claims for unemployment remained very low during the first week of April. To be honest, I don’t think we need to focus too much on this data anymore, as these numbers have been back to normal for a while now.

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