Pre-War Inflation High; Fed Rate Hikes Expected

This data, delayed by a six-week government shutdown, indicates that everyday costs were already high, with monthly increases, if annualized, easily surpassing the Federal Reserve's 2% inflation target. Kathy Bostjancic, chief economist at Nationwide, confirms consumer inflation was firming pre-Middle East war and expects a sharp jump in March, with commodity prices taking months to settle even if the Strait of Hormuz reopens.

The upcoming March Consumer Price Index report is forecasted to show a significant 0.9% monthly increase and a 3.4% annual gain, a substantial rise from February's 2.4%. This projected surge will heighten Federal Reserve concerns, making rate cuts highly improbable and increasing the likelihood of future rate hikes, as some officials already supported opening the door to such actions.

Higher inflation is actively eroding Americans' purchasing power, causing real consumer spending to barely increase in February and Bostjancic to project a modest 1.2% annual growth rate for Q1, down from 1.9% in Q4 last year. Despite these inflationary pressures, the economy is expected to grow a decent 2% in the first quarter, driven by investments in artificial intelligence and a rebound in government spending.