The jump in energy prices was the main driver of the upward year-on-year growth of CPI in March. Divide CPI into three items (namely food item, energy item and core item). From the perspective of CPI contribution, core item energy item food item. In the March inflation data, although energy and food items rose, the upward driving effect of CPI in March mainly came from the rise of energy prices. From the historical data, generally speaking, the change of energy item dominates the change direction of overall inflation. Therefore, we can predict the overall inflation by tracking the change of energy item.
Under the geopolitical conflict, the energy shortage situation intensifies the fluctuation of energy commodity prices and delays the downward trend of inflation. The conflict between Russia and Ukraine is an influencing factor of us energy inflation. The uncertainty of this factor mainly comes from two aspects: one is the degree of conflict between Russia and Ukraine, and the other is the production decision of the organization of petroleum exporting countries. We believe that the risk of subsequent oil price rise is increasing. On the one hand, the United States once again provides a large amount of military assistance to Ukraine, which may add fuel to the complex situation; On the other hand, IEA's oil market report on 2022q2 shows that OPEC did not choose to increase production. It is expected that the supply shortage related to the conflict between Russia and Ukraine will continue to put pressure on the existing inflation. If the subsequent oil price rises again, the downward trend of inflation will be delayed.
The gap between production and demand has narrowed, but the cost pressure caused by the shortage of labor supply is still rising. In terms of production, the supply-demand gap between new order PMI and output PMI in the United States narrowed compared with last year, and the new order PMI fell sharply in March. The narrowing of the gap is mainly due to the decline of new order PMI, rather than the improvement of production end. The low stock to sales ratio of manufacturing industry also shows the mismatch between stock out and sales, which indicates that the supply problem still exists, and it will take time to repair the gap between supply and demand of subsequent commodities. In the labor market, the vacancy rate rebounded to an all-time high, but the labor participation rate hovered at a low level, indicating that the gap between labor supply and demand is still serious. In addition, the month on month growth rate of hourly salary rose to the second highest in the same period since 2012. The situation of labor shortage is still aggravating, and the supply bottleneck is difficult to be eliminated soon. It is expected that the mismatch between supply and demand in the labor market will continue to push up labor costs and increase inflationary pressure.
March was not the peak of inflation, and the peak rate probably fell in the second quarter. Looking at the current factors affecting inflation, one is the geopolitical risk factor, the other is the change factor of supply bottleneck. In the short term, the evolution of oil prices is uncertain, but there are upward risks. In the medium term, it will take time to improve the fundamentals of supply and demand, and it is difficult to eliminate the supply problem quickly. These obstacles may cause the fall of inflation to lag. However, the Fed's determination to curb inflation and hawkish interest rate hikes mean that the peak of inflation may not be far away, the lag period for inflation to fall may not be long, and the peak rate is expected to fall within the range of the second quarter.
Risk factors: the conflict between Russia and Ukraine worsened than expected, and the Fed accelerated the pace of raising interest rates.
