The “Split” in CPI — Oil Prices Push Up Inflation, but Core CPI Releases a Mild Signal

U.S. March CPI data reveal a “split” inflation picture. Overall CPI year-over-year rose from the prior 2.4% to 3.3% (below the expected 3.4%). On a month-over-month basis, it rose to 0.9%, the largest single-month increase since June 2022. Core CPI year-over-year rose from the prior 2.5% to 2.6% (below the expected 2.7%). The month-over-month growth rate remained steady at 0.2%, staying moderate.

In March, after seasonal adjustment, gasoline prices rose 21.2% month-over-month, setting the highest increase rate since records began in 1967. It contributed nearly three-quarters of the overall CPI’s month-over-month increase. Airfares, which are sensitive to changes in oil prices, rose 14.9% year-over-year, the highest increase rate since March 2023. However, food prices had zero month-over-month growth. Used car prices fell 0.4% month-over-month. The year-over-year growth rate for the housing component has remained steady at a moderate 3.0% for three consecutive months.

CITIC Securities research believes that the risk of a second round of inflation in the U.S. is relatively small. If oil prices pull back slowly, the U.S. CPI year-over-year may continue to stay above 3% for the remainder of the year. The Federal Reserve still has the possibility of cutting interest rates by 25 bps within the year, but the prerequisite is that oil prices do not continue to rise sharply. The minutes of the Federal Reserve’s March monetary policy meeting show that the vast majority of participants believe both the risks of inflation rising and the risks of employment falling have increased. If inflation remains above the target level, it is appropriate to raise the target range for the federal funds rate.

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