Instant Insights: Energy costs feed into CPI | Insight Investment

Consumer prices rose 0.9% in March, pushing headline CPI from 2.4% to 3.3% year-over-year, the highest since May 2024. Core prices rose a more modest 0.2%, taking core CPI from 2.5% to 2.6%.

Energy was unsurprisingly the major story, given events in the Middle East. However, as long as long-term inflation expectations remain anchored, we expect the Fed will be biased to “look through” the current spike in CPI.

Energy shock drives CPI up

Energy prices rose 10.9% in March, the most since September 2005. This was mostly driven by a 21.2% rise in gasoline prices (the largest on record). Elsewhere, price pressures appeared relatively benign. Food prices were flat and core goods prices rose a modest 0.1%. Tariff-sensitive goods categories did rise 0.4%, indicating some continued pricing pressures due to changes in trade policy.

Figure 1: Energy CPI spikes as global oil shock feeds through¹

Within core services categories, energy prices appeared to filter through to airline fares, which rose 2.7% in March, pushing transportation services up to 4.1% year-over-year, its highest rate since February 2025 (Figure 2). Elsewhere, shelter, the largest component of CPI, remained at 3% year-over-year.

Figure 2: Energy prices helped push up transportation services inflation¹

The fed will keep an eye on inflation expectations

The US-Iran ceasefire announced on April 7 has the potential to relieve pressure on energy CPI. For now, it has helped near-term inflation expectations moderate, although they remain elevated overall (Figure 3).

Nonetheless, Fed Chair Powell has been clear that the central bank’s playbook is to “look through” the global oil price spikes unless long-term inflation expectations become unanchored. For now, longer-term inflation expectations appear stable (Figure 3).

We expect the Fed to be encouraged by the relatively mild print for core CPI. Although the geopolitical environment remains uncertain, the Fed’s bias, in our view, will still be to keep rates on hold over the coming months.

Figure 3: Near-term inflation expectations remain elevated but longer-term expectations remain anchored²