Wall Street: inflation, Fed and oil

In US economic news this Wednesday, the producer price index for March 2022 will be released at 2:30 p.m. (consensus +1.1% compared to the previous month and +10.6% year-on-year; +0 .5% excluding food and energy, i.e. +8.4% over one year). The Atlanta Fed inflation expectations index for April will be announced at 4 p.m. (3.8% in March). The Department of Energy's weekly report on US domestic oil inventories for the week ending April 8 will be released at 4:30 p.m.

Yesterday, the US inflation figures for the month of March came out at their highest since 1981. Thus, the consumer price index for the month of March published today increased by 1.2% compared to the month earlier, against a consensus of 1.1%. Energy prices soared by 11% in March and food prices by 1%. Over one year, inflation reached 8.5%, a record, against 8.4% of the FactSet consensus and 7.9% for the increase in February, which was already a 40-year high. Excluding food and energy this time, the CPI appreciated by 0.3% against 0.5% consensus. It increased by 6.5% over one year against a 6.6% consensus.

Richmond Fed boss Thomas Barkin sees challenges in the fight against inflation and the possibility of more tightening than in the past. In a speech at New York University's Money Marketeers Forum, Richmond Fed Chairman (nonvoting) discussed the Fed's policy outlook, noting that the FOMC's median projections (seven rate hikes this year and three to four next year) predict that inflation will be contained, with the easing of "pandemic pressures" and a return to just above neutral rates. However, the endpoint of the rate hikes would not be clear at this time. He suggested a few reasons to think we might face more headwinds when it gets will act to contain inflation in the future. Tariffs, the pandemic, and the conflict in Ukraine have exposed vulnerabilities in the global supply chain, Barkin also noted. There will likely be some de-globalization, demographic shifts putting pressure on labor supply and demand, and an increase in fiscal debt, the official also analyzed.

Barkin said the Fed would recognize headwinds that are becoming persistent and make adjustments. The 2% inflation target would not change, but the appropriate path to achieve it might. Inflationary pressures could make it more difficult to examine short-term shocks, which could justify periods of greater monetary policy tightening than recent trends.

St. Louis Fed President James Bullard said reaching neutral would not be enough to bring inflation under control, according to comments reported by the Financial Times. Bullard (voting member) said it was a fantasy to think that raising interest rates to a neutral level would be enough to bring inflation under control. He cited the latest inflation report from March as arguing that the Fed was behind the curve and needed to pick up the pace of tightening. Bullard backs raising fed funds rates to 3% by the third quarter, a level he admitted was ambitious. However, he warned that the Fed risked eroding its credibility if it did not act with haste.