Inflation Surged 2.6% On A Yearly Basis In March Here’s Why

Grocery Store In Pennsylvania During COVID-19 pandemic

Consumer prices—everything from cars to groceries to clothes and houses—rose 2.6% over the 12 months ending in March 2021, according to data released Tuesday by the Labor Department, in line with experts’ expectations of a short-term bounce in inflation as the economy begins to recover from the slowdown caused by the coronavirus pandemic.

Key Facts

Prices rose 0.6% from February—their largest jump since August 2012—and the core price index, which excludes volatile energy and food prices, rose 1.6% over the last year.

Tuesday’s data comes amid heated debate in Washington about whether President Biden’s ambitious fiscal spending agenda—when combined with an upcoming boom in consumer spending—will overheat the economy and push prices to unsustainable levels.

Some of the spike in prices last month is attributable to something called the “base effect”—the fact that prices were so much lower than usual during the onset of the pandemic last spring means that yearly measures of price movement this year are distorted.

Federal Reserve chair Jerome Powell has repeatedly said that the central bank is anticipating a short-term spike in prices as the economy recovers and that the Fed has the tools to deal with runaway inflation should it become a problem.

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In the past two decades inflation has puzzled economists by remaining low in good times and bad. Could the pandemic cause it to rise? Sign up to The Economist’s daily newsletter to keep up to date with our latest coverage: https://econ.st/3aor3kg Find all of our finance and economics coverage: https://econ.st/3nsEfZm Read our special report about how inflation is losing its meaning as an economic indicator: https://econ.st/3noSaPY
How to make economic policy fit for a world of low inflation: https://econ.st/2IWxy2u Why a surge in inflation due to the pandemic looks unlikely: https://econ.st/2KAfITk The World In 2021: governments must judge if the economic recovery needs more help: https://econ.st/37sscpj Why economists’ models of inflation are letting them down: https://econ.st/3gTULPA How most emerging markets overcame high inflation: https://econ.st/3gWOUZD Why the Fed made its biggest inflation-policy change in decades: https://econ.st/3oTAQD8
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Crucial Quote

“We don’t see runaway inflation as an imminent risk—actual inflation is nowhere near what markets are pricing in, and even with a near-term price lift, it won’t be enough to signal runaway inflation,” analysts from S&P Global wrote in a Monday research note.

Key Background

On Monday, two White House economists explained why they expect a manageable uptick in inflation in the short term—a view shared by other Biden officials at the Treasury Department and at the Federal Reserve. First, they cite the base effect. Second, they note that ongoing supply chain disruptions could cause manufacturers to temporarily raise prices to make up for materials that are temporarily more expensive. Last, they say that pent-up demand caused by months of restrictions and closures may prompt some businesses to raise prices to take advantage of extra demand. The economists emphasized that these effects will be short-lived and said they are confident inflation will fall back to normal levels over time.

Further Reading

Here’s Why The White House Isn’t Worried About Inflation (Forbes)

Federal Reserve Looking Ahead To Higher Inflation As Economy Rebounds, But It Won’t Raise Rates Yet (Forbes)

Inflation—Not Covid-19—Is Now The Biggest Risk To Markets, Bank Of America Survey Shows (Forbes)

Biden’s Infrastructure Plan May Slow Economy Down, Moody’s Says—But Not For Long (Forbes)

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I’m a breaking news reporter for Forbes focusing on economic policy and capital markets. I completed my master’s degree in business and economic reporting at New York University. Before becoming a journalist, I worked as a paralegal specializing in corporate compliance.

Source: Inflation Surged 2.6% On A Yearly Basis In March—Here’s Why

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Vaccine Pause Hits Reopening Shares

Also, people shouldn’t think of vaccines as a simple product without potential problems. No one knows yet if these blood clots are a game changer for the JNJ vaccine, but it isn’t surprising that a complication got reported, simply because vaccines aren’t widgets. Like any medical product, they’re complex and can have different effects on different people.

Hopefully this gets resolved quickly and the JNJ vaccine comes back. It’s a handful of cases (six cases after 6.8 million vaccinations) and the FDA said it acted “out of an abundance of caution.” It’s unclear how long it might take to get to the bottom of this, but the other vaccines were already being used millions of times a day in the U.S., and that continues. The FDA may want to examine more data before allowing JNJ to come back, but in a worst-case scenario it’s off the market for an extended period, putting more pressure on supplies of the other vaccines.

The JNJ pause could put some pressure on some of the “reopening” stocks and sectors until things get sorted out. Already this morning we’re seeing shares of airlines, casinos, and cruise lines turning lower in pre-market trading. An FDA press conference scheduled for 10 a.m. ET today might grab Wall Street’s attention.

Though reopening shares start the day under pressure, a new JP Morgan Chase (JPM) note suggests the economy could fully reopen by July 4. Whether this JNJ development affects that timeline is unclear, but it’s nice to think JPM might be right.

Meanwhile, volatility remains light and Bitcoin is now above $62,000. The Cboe Volatility Index (VIX) is up, but still below 17.5, which is amazing when you remember how long it spent above 50 last year.

Unless there’s big news out of the FDA press conference, trading could be pretty slow today as investors await tomorrow’s onslaught of big bank earnings.

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