The consumer price index came in hotter than expected in March, as the CPI inflation rate hit a new 40-year high. But core prices were were tamer than expected. The Dow Jones, S&P 500 and Nasdaq composite rose after the CPI report in early Tuesday stock market action, but reversed to close lower.
The CPI rose 1.2% from the prior month and 8.5% vs. a year ago, the biggest annual gain since December 1981, the Labor Department said. The core CPI, which strips out volatile food and energy categories, rose a more moderate 0.3% from February. The annual core inflation rate rose to 6.5%, highest since August 1982.
Economists expected the overall CPI to rise 1.1% on the month, lifting the annual CPI inflation rate to 8.4%. The core CPI was seen rising 0.5% vs. February and 6.6% from a year ago.
"Barring further severe disruptions, the March release is likely to be the peak in terms of year-over-year rates for both headline and core (inflation)," Deutsche Bank's economics team wrote ahead of the data release. They noted that last year's surge in used car prices began in April, so next month's data will be compared to a higher year-ago level.
Still, inflation is expected to stay way above the Federal Reserve's comfort level for an extended period, partly as a result of strong rent inflation trends.
Ahead of the report, the CME Group's FedWatch page showed 88% odds of a half-point rate hike on May 4, the Fed's next scheduled policy update.
Dow Jones, Treasury Yields Reaction To CPI Inflation Rate
That Dow Jones Industrial Average rose 0.8% after the CPI report. The S&P 500 advanced 0.8%, while the Nasdaq leapt 1%.
Russia's Ukraine invasion threw gas on the inflationary problem in the U.S. and around the globe, sparking a selloff. While the stock market subsequently staged a rally, it has been faltering recently. As of Monday's close, the Dow was off 5.6% this year. The S&P 500 has fallen 7.4%, while the Nasdaq composite has tumbled 14.3%.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the stock market trend and what it means for your trading decisions.
After the CPI report, the 10-year Treasury yield fell 5 basis points to 2.73%, after hitting a fresh three-year high on Monday.
CPI Inflation Report Details
Prices for used cars and trucks fell 3.8% on the month, but rose 35.3% from a year ago.
Demand for used cars has gotten a boost amid the global chip shortage that has snagged production for new autos. Prices for new vehicles rose 0.2% on the month, while rising 12.5% from a year ago.
Energy prices rocketed 11% on the month and increased 32% from a year ago. But gasoline prices at the pump have fallen somewhat in recent days.
Prices for food away from home rose 0.3% in March vs. February, while rising 6.9% from a year ago. Prices for food consumed at home jumped 1.5% last month and 10% from a year ago.
Prices for medical services rose 0.6% on the month, bringing the year-over-year increase to 2.9%.
Meanwhile, shelter prices rose 0.5% in March, as owner's equivalent rent rose 0.4%.
