America’s red-hot inflation rate just got hotter. The consumer price index (CPI), which measures a variety of goods and services, rose 8.5% in March from a year earlier. The CPI report for March 2022 shows inflation above the consensus analyst expectation of 8.4%, marking the highest level in the U.S. since 1981. The last time inflation was running this hot, Blondie was topping the music charts and Raiders of the Lost Ark was dominating the movie box office.
The U.S. Labor Department said that, excluding volatile food and energy prices, the CPI increased 6.5% in March, which was in line with Wall Street expectations. The latest inflation data shows price rises that have not been seen in the U.S. since the early 1980s.
Yet despite the worse-than-expected inflation increase in March, stock markets are rising and bond yields are declining today following the CPI report. Investors seem to be betting that at 8.5%, inflation is near its peak and will likely subside into 2023. On a monthly basis, core inflation that excludes food and energy prices rose 0.3% in March from February, which indicates consumer prices are beginning to cool off.
Investors pushed up the Dow Jones Industrial Average by 200 points, or 0.58%, by midday. The S&P 500 climbed 0.71% higher and the Nasdaq gained 1.06% by noon. The U.S. 10-year bond declined to about 2.7%. Markets are also getting a lift today from higher oil stocks, which are rising along with the price of crude oil.
Investors appear to be shrugging off the prospect of monetary policy tightening on the part of the U.S. Federal Reserve in the wake of the latest CPI report. To bring down inflation, the Fed has already started raising interest rates and is expected to continue doing so well into next year. With March inflation coming in at 8.5%, some economists are now forecasting that the Fed will raise rates by 50 basis points at the end of April.
Some economists and market observers also believe the aggressive rate increases could push the U.S. into a recession by the end of this year or 2023. They note the last time consumer prices were this overheated, the Fed raised its benchmark interest rate to nearly 20%, prompting a recession that brought inflation under control. Last week, Deutsche Bank (NYSE:DB) became the first major firm to officially forecast a U.S. recession.
Yet investors are taking it all in stride today and buying stocks, willing to overlook some truly big price jumps. Among select categories of goods and services, food prices rose 1% for the month and 8.8% year-over-year in March. Energy prices were up 11% and 32% respectively as gasoline prices jumped 18.3% in March.
Additionally, shelter costs rose 0.5% on the month, making its 12-month gain of 5% the highest level since 1991. Finally, airline fares jumped by 10.7% between February and March and were up 23.6% from a year ago.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.