The U.S. inflation rate once again hit a 40-year high in March at 8.5% as energy and food prices surged, but what’s next?
It is familiar reading. The U.S. inflation rate once again hit a 40-year high in March at 8.5% as energy and food prices surged. The monthly increases in prices was the highest since this inflation spike began, as impacts from the Ukraine conflict further disrupted commodity pricing and supply chains. Bond markets are taking this prolonged bout of inflation, and the Fed’s potential reaction to it, even more seriously as the yield on the 10-year Treasury now stands at approximately 2.7% a sharp increase compared to 1.7% just a month ago. Though many are discussing whether this is the peak level of inflation, the bigger question for markets is where inflation will settle over the next few years. That will have implications for both stock and bond pricing, and of course the Fed’s path for interest rates. Certain cost increases may have been one-off spikes, and though they may not necessarily reverse, will not push up inflation further if prices continue to level off or even fall back.
