Higher oil prices push inflation up but core pressures stay contained, for now

Headline inflation rose 0.9% in March, or 3.3% annually, driven by a 21.2% surge in gasoline prices. The CPI excluding food and energy increased 0.2% in March, or 2.6% annually, showing core inflation remains muted. 97% of corporate economists surveyed raised their inflation forecasts due to rising energy prices. 59% of surveyed economists expect no or only minor pass-through from energy costs to core inflation. Rising energy prices have prompted 71% of surveyed economists to delay their forecast for a Federal Reserve rate cut until after July. Surveyed economists now project the federal funds rate will end the year at 3.35%, up nearly 0.2 percentage point from last month’s forecast. A 10% increase in oil prices now lifts inflation by 0.25 percentage point, down from 0.9 percentage point in the 1970s, due to reduced energy intensity in the U.S. economy. The same oil price shock reduces GDP growth by just 0.05 percentage point today, compared to 0.7 percentage point in the 1970s. Most corporate economists (59%) believe higher inflation from the Iran conflict will be temporary and the U.S. economy will grow 2.2% this year.