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By Scott McIntyre, CFA
Co-Head of Investment Management
HilltopSecurities Asset Management
Investors expected an ugly CPI report for March, and the BLS delivered, reporting the biggest single monthly increase since June 2022. The +0.9% overall gain, which matched the median forecast, drove the annual pace up from +2.4% to +3.3%. As expected, the jump in consumer inflation last month was entirely driven by a surge in crude oil prices. The energy component, making up roughly 6.5% of the overall CPI basket, climbed +10.9% in March with a record +21.2% increase in gasoline prices somewhat offset by a -0.9% drop in the price of domestic utility gas.
The early reaction by the financial markets seems to be mild relief as the other headline numbers came in slightly below forecast – core CPI (which excludes energy) rose just +0.2% last month, nudging the year-over-year core rate up from +2.5% to +2.6%. The overriding question was whether the energy spike would bleed into the core. It wasn’t evident in March … but it’s still early.
Food prices were unchanged last month, with the cost of groceries actually down -0.2%. Airfares continued to climb, up +2.7% last month and nearly +15% year-over-year. The cost for a new vehicle rose just +0.1%, while used cars and trucks were down for the third straight month (-0.4%). Lower prices have had a positive impact on auto insurance, which was unchanged in March and up just +0.8% for the year. The annual percentage increase in the cost of auto insurance has mercifully declined since reaching a peak of +20.3% in 2023.
Shelter costs, accounting for over a third of the overall basket and the primary downward driver of consumer inflation since 2022, rose +0.27% last month. The so-called supercore services index (core ex shelter) increased by just +0.18%, a 10-month low.
Today’s report wasn’t quite as bad as expected, but the conflict in the Middle East is far from over and energy prices will still have a pronounced impact on April CPI. In fact, last month’s rise in gasoline prices (according to the BLS) was approximately half of the rise in pump prices reported by AAA … so there’s certainly more to come, although the month-over-month gain won’t be nearly as dramatic. As a result, there’s very little insight to be gained from March CPI. Core inflation hasn’t increased meaningfully yet but given the known surge in diesel and jet fuel prices, the cost of both goods and services could experience additional pressure as summer approaches.
Fed officials have indicated a willingness to look through what is hoped will be a temporary spike in energy prices, but the FOMC is no closer to cutting rates. Bond yields are slightly higher in early trading, but lower on the week. Equities are mixed.
About Scott McIntyre, CFA
As HilltopSecurities Asset Management’s Co-Head of Investment Management, Scott McIntyre specializes in investment management services and is responsible for the management, oversight and trade supervision of more than $30 billion in institutional fixed income assets for HilltopSecurities’ public sector municipal clients. Scott also provides investment advice and consulting, reviews local government investment policies, formulates overall investment strategies, evaluates account performance and oversees the day-to-day operations. He is a member of the Chartered Financial Analyst (CFA) Institute and a CFA Charterholder, a two-term advisor to the GFOA Treasury and Investment Management (TIM) committee, a Registered Investment Advisor, and holds FINRA Series 7, 24, 63, and 65 licenses.
About Greg Warner, CTP
As HilltopSecurities Asset Management’s Co-Head of Investment Management, Greg Warner specializes in investment management services and is responsible for the management and oversight of more than $30 billion in institutional fixed income assets for HilltopSecurities’ public sector municipal clients. Greg coordinates all client services and portfolio management duties, including security evaluation and portfolio analysis, trading, investment reporting, board presentations, and monitoring of broker-dealer relationships. He is an advisory committee member to the Texas Association of Counties, a member of the Government Treasurers’ Organization of Texas (GTOT), a Registered Investment Advisor, a Certified Treasury Professional (CTP) and holds FINRA Series 7, 63, and 65 licenses.
About Matt Harris, CFA
As HilltopSecurities Asset Management’s Senior Portfolio Advisor, Matt Harris specializes in investment management services for public sector municipal clients. He developed his experience in the banking industry, supporting balance sheet management, interest rate risk analysis, liquidity planning, and investment strategy implementation. At HilltopSecurities, he works closely with clients to develop and implement customized investment strategies, oversees account documentation and reporting, and assists clients with the public funds depository review process, including competitive RFP evaluations. Harris is a member of the CFA Institute and a CFA Charterholder, a Registered Investment Advisor, and holds FINRA Series 7, 63, and 66 licenses.
The paper/commentary was prepared by HilltopSecurities (HTS). It is intended for informational purposes only and does not constitute legal or investment advice, nor is it an offer or a solicitation of an offer to buy or sell any investment or other specific product. Information provided in this paper was obtained from sources that are believed to be reliable; however, it is not guaranteed to be correct, complete, or current, and is not intended to imply or establish standards of care applicable to any attorney or advisor in any particular circumstances. The statements within constitute the views of HTS as of the date of the document and may differ from the views of other divisions/departments of Hilltop Securities Inc. and its affiliates. In addition, the views are subject to change without notice. This paper represents historical information only and is not an indication of future performance. This material has not been prepared in accordance with the guidelines or requirements to promote investment research, it is not a research report and is not intended as such. Sources available upon request.
Hilltop Securities Inc. is a registered broker-dealer, registered investment adviser and municipal advisor firm that does not provide tax or legal advice. HTS is a wholly owned subsidiary of Hilltop Holdings, Inc. (NYSE: HTH) located at 717 N. Harwood St., Suite 3400, Dallas, Texas 75201, (214) 859-1800, 833-4HILLTOP.