Inflation still stubborn

U.S. inflation accelerated again in March, underscoring why price pressures are still not back under control. (bls.gov) The Consumer Price Index rose 0.9% in March after a 0.3% increase in February, and annual inflation climbed to 3.3% from 2.4%. Core inflation, which strips out food and energy, rose 0.2% on the month and 2.6% over 12 months. (bls.gov) Energy drove much of the jump. The energy index rose 10.9% in March, gasoline surged 21.2%, and the Bureau of Labor Statistics said gasoline accounted for nearly three-quarters of the monthly increase in overall consumer prices. (bls.gov) Shelter prices also kept moving higher, rising 0.3% in March and 3.0% over the past year. Transportation services increased 0.6% on the month and 4.1% from a year earlier. (bls.gov) That mix matters for the Federal Reserve because it leaves inflation above the central bank’s 2% target even after the March energy shock is set aside. St. Louis Federal Reserve President Alberto Musalem said on April 1 that risks now tilt toward “greater persistence of above-target inflation” and backed keeping the policy rate at 3.5% to 3.75% for “some time.” (stlouisfed.org) Minutes from the Federal Open Market Committee’s March 17-18 meeting show officials were already confronting higher near-term inflation projections as energy prices climbed. The minutes said futures markets shifted enough that a rate cut was not fully priced in until December, and options markets implied about a 30% probability of rate hikes through early 2027. (federalreserve.gov) Bank economists are making the same point in their own forecasts. The American Bankers Association said on March 6 that its Economic Advisory Committee expects inflation to stay above the Federal Reserve’s 2% goal through the forecast horizon, with overall personal consumption expenditures inflation peaking at 2.8% in the second quarter of 2026. (aba.com) For banks, stubborn inflation changes the math on rates, funding and deal demand. Deloitte said in its 2026 banking outlook that persistent inflation could test bank revenues and profitability even with strong capital positions. (deloitte.com) Supervisors are also leaning harder on bank-partnership risk. In July 2024, the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency issued a joint statement warning banks about third-party arrangements used to deliver deposit products and services, while stressing that banks remain responsible for managing those risks. (fdic.gov) That leaves the near-term picture unusually tight: inflation is running at 3.3%, gasoline just posted its biggest monthly jump in years, and policymakers are signaling patience rather than quick rate cuts. (bls.gov; federalreserve.gov)