Consumer prices rose 3.3% in March from a year earlier, according to the just released CPI Index. This was much higher than February’s gain of 2.4%.
It was the highest reading in two years.
Excluding food and energy categories, the Core CPI Measure that economists watch to better capture inflation’s underlying trend rose 2.6%. This was slightly below forecasts for a 2.7% increase.
Highlights of the CPI Report include…
1 – Energy prices jumped 12.5% from a year earlier. This was a dramatic acceleration from 0.5% in February. Gasoline prices jumped 18.9% and fuel oil surged by 44.2%.
2 – Transportation services, which are directly affected by fuel costs, rose 4.1% from a year earlier in March.
3 – Used-car prices fell by 3.2% from a year earlier
4 – Airline fares surged by 14.9% year over year.
Today’s report offers the first snapshot of how the Iran War affected inflation. If energy prices remain high, food prices could increase because fertilizer is made from natural gas and other goods.
Oil is used to make everything from lipstick to golf balls, which could eventually increase their prices. Higher transportation costs could push up the price of food, clothing, and other essentials.
A cease-fire in the Iran war was announced this week, but it remains fragile. And economists caution that the prices of energy and other goods that surged after the war began won’t immediately fall back to their old levels even if the Strait of Hormuz fully reopens.
Companies are quick to raise prices and much slower to lower them, if at all.
Let me leave you with this…
During every prior historical conflict over the decades investors sought safety in the US Dollar and US Treasuries, but not this time. Our global trade partners are selling T Bills, which is causing the yields on those bonds to rise.
This has never happened before.
Russia’s invasion of Ukraine, China’s saber-rattling against Taiwan in 2022, the collapse of Silicon Valley Bank and the Hamas attacks on Israel in 2023 sent money into Treasuries, not out of them. And yields fell, but not this time.
As the US throws its military might around the globe, our trade partners have had enough. Foreign Central Bank holdings at the Federal Reserve Bank of New York dropped by $82 billion to $2.7 trillion. This is the lowest it’s been since 2012.
It’s illogical for countries to finance US spending, which seems out of control, thereby supporting their own demise. Just last week the Treasury tried to auction $43B in debt, and no one showed up to buy it.
The Treasury Department stepped in and executed its largest debt buyback ever, totaling $15B. Consider the implications for our future if no one wants to buy US Dollars or T Bills.
I’ve written extensively about the intentional devaluation of the US Dollar. In just over a year, every dollar sitting in your accounts has lost 7% of there buying power.
That devaluation looks like it may accelerate.
Fed Chairman Powell stated last week, “There is effectively zero net job creation in the private sector.”
As one-year inflation expectations rise and the odds of a rate hike increase as well, the US economy just posted its largest monthly job loss since December 2020, losing 133,000 jobs in February. The Fed faces a prisoner’s dilemma needing to choose between controlling inflation or supporting the labor market.
This is the hallmark of stagflation.
Inflation and the labor market are moving in opposite directions. In just a month, our new Fed Chair will likely choose lower rates and growth over fighting inflation
The Fed is trapped. Rates should be increased to combat inflation, but our debt laden economy would crash into flames. Growth is always an easier choice.
This is my way of warning you to watch your financial statements like a hawk. It looked like inflation was under control for a moment, but that time seems to have passed.
A period of stagflation is no joke. We experienced an extended period of it back in the 70’s. It’s a rare mix of high inflation, slow growth, and high unemployment.
The problem is that little that can be done to combat it. As such, maintaining your margins and profits will be the only way through this potentially difficult economy.
But do so knowing that you aren’t alone. I’m right there with you. So let’s dig a hole, shoulder a weapon, and get through this thing. If you need to talk, you know my number.
As always, if you’re having difficulties with your accounting and tax work, don’t hesitate to contact us.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
888-310-0300
www.AccountingSolutionsLtd.com
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