Author：Bloomberg
I’m Chris Anstey, a senior economics editor in Boston. Today we’re looking at worrying US inflation parallels with 2022. Send us feedback and tips to ecodaily@bloomberg.net. And if you aren’t yet signed up to receive this newsletter, you can do so here.
Top Stories
- Iran pressed on with attacks across the Persian Gulf hours before US President Donald Trump’s deadline to agree to a ceasefire plan.
- Trump has discussed seizing control of Iran’s oil sector to expand US energy dominance and gain trade leverage against China.
- Coming up: Romania, New Zealand and India are expected to keep interest rates on hold.
2022 Parallels
The 1970s and early 1980s set a benchmark for what high US inflation looked like that lasted for decades. Now, the frame of reference is the cost-of-living surge of 2022.
That’s when Covid supply-chain problems combined with the Russia-Ukraine war and what many regard as excessive fiscal stimulus to send consumer prices up over 9% at the peak, in June that year. That high water mark seems unlikely to be revisited for now, but the parallels with what happened four years ago are beginning to multiply.
The latest look at the US non-manufacturing sector, out Monday, showed a gauge for prices paid for services and materials climbed in March to the highest since October 2022.
Even before the US-Israeli war with Iran, a measure of the cost of imported goods jumped by the most since 2022 — stoked by tariffs, red-hot demand for capital goods amid the AI boom and a depreciating US dollar. Leaving out petroleum, import prices in February rose 1.2% on the month. The sub-category for capital goods such as semiconductors and industrial machinery was up the most since the data series began in 1988.
The war’s impact has of course driven up US gasoline prices, now up over $4 a gallon on average across the country for the first time since, yes you guessed it, 2022. Higher energy costs are already bleeding into some other areas, such as broader transportation costs, from airfares to trucking.
Trucking operators were already dealing with the challenge of a shrinking pool of drivers in the US prior to the Iran war, and they’re now confronting a 50% spike in diesel prices. Haulers have responded by raising the weekly per-mile fuel surcharge paid by shippers to its highest since 2022.
Although transportation costs represent a relatively small portion of the final price consumers pay for goods, the surge in shipping expenses risk adding to inflationary pressures. March data due Friday is expected to show a sharp rise in headline consumer prices.
“We expect March CPI to show the largest month-over-month increase in headline inflation since June 2022,” the Bloomberg Economics US team lead by Anna Wong says, penciling in 0.9%. While their projection for the core — which excludes food and energy — is a tame 0.2%, that’s not the case for their prediction for the other main US inflation gauge.
The core PCE index for February, due out on Thursday, is likely to show a 0.4% rise, Bloomberg Economics says. That will keep the year-over-year rate above 3.0%, and “suggests underlying inflation pressures were already building” before the war.
The Best of Bloomberg Economics
- Japan’s households reduced spending for a third straight month even after real wages turned positive as demand remains fragile.
- Singapore unveiled enhanced support measures to cushion the economy and warned of possible war-related power disruptions.
- Thailand’s yearlong stretch of falling prices is nearing an end, as higher oil costs and Middle East supply disruptions feed through to inflation.
- Czech inflation accelerated less than expected, while a surprise drop in Sweden’s core gauge bolsters the case for a rate pause.
- A $90 bottle of wine shows that despite the best efforts of vintners, importers and distributors to minimize the impact of Trump’s tariffs, consumers are paying the price.
Need-to-Know Research
Even a bear market for US stocks and an oil-price surge up to $170 a barrel wouldn’t be sufficient to tip the American economy into a recession, according to Anna Wong at Bloomberg Economics.
“Even a 20% correction in the S&P 500 would still leave real GDP growth in expansionary territory,” Wong wrote in a note last week. And as for $170 oil, “the domestic energy sector will offset a substantial part of the impact on consumers,” she said. One key reason for her expected resilience: tax refunds from last year’s Republican legislation “are arriving just in time to cushion some consumer spending.”
“To get closer to a recessionary outlook, a necessary ingredient would be broad-based financial-market stress that widens credit spreads by at least another 150 basis points,” Wong said. (The yield premium of US corporate bonds has barely increased since the Iran war began, as illustrated above.)
Wong said high oil prices could lead to wider spreads for debt compared with US Treasuries, “but probably wouldn’t be enough on their own — we think the spark would likely have to originate elsewhere.”
- For the full note on the Bloomberg terminal, click here.
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