Higher energy prices and food costs in March could lead to the hottest consumer inflation since 1981.

• In March, inflation increased by 1.1% compared to the previous month, although the yearly increase is predicted to be 8.4%, which is the highest since December 1981.
• The consumer price index will be reported Tuesday at 8:30 a.m. ET.
• Food and energy were the primary drivers of the increase in headline inflation, but the cost of housing has also remained high.
• One economist predicted that the March report would be unattractive, stating, "It's a perfect storm."

In March, it is predicted that consumer price inflation will have increased the most since December 1981 due to the rise in food costs, rents, and energy prices.

The Consumer Price Index (CPI) will be released on Tuesday at 8:30 a.m. ET, with economists anticipating a monthly increase of 1.1% and a year-over-year gain of 8.4%. This is higher than February's increase of 0.8%, or 7.9% year over year, which was the highest since early 1982.

Mark Zandi, Moody's Analytics' chief economist, stated that the situation would be unattractive. He described it as a "perfect storm" with various factors such as the Russian invasion, rising oil prices, China's lockdown, supply chain disruptions, accelerating wage growth, and unfilled positions. As a result, inflation would be painfully high. The world is currently facing two significant global supply shocks, making it challenging to imagine that we won't experience higher inflation.

According to Dow Jones, core inflation, excluding food and energy, is predicted to increase by half a percent in March, matching the rate from February, with a year-over-year increase of 6.6%, up from 6.4%.

According to Diane Swonk, chief economist at Grant Thornton, the surge in oil prices following Russia's invasion of Ukraine in late February may have been the peak, as prices have since fallen to about $94 per barrel on Monday.

On March 11, the national average of unleaded gasoline reached $4.33 per gallon, an increase from the previous day's price of $4.11 per gallon.

Swonk stated that the Fed faces a challenge due to the expansion of inflation from goods to services, as well as the potential rise in used car prices. Additionally, he pointed out that supply chain issues are persisting and becoming more severe.

According to economists, this month or the next could mark the peak for inflation. Zandi predicts that the headline CPI will decrease to 4.9% by the end of the year.

The Federal Reserve is predicted to increase policy stringently to curb the highest inflation in 40 years. Market analysts anticipate a 0.5% rate increase in May, and economists suggest that a scorching inflation report may also result in a 0.5% rate increase in June.

The Federal Reserve is following its plan with a minimum half-percent increase, and the beginning of balance sheet reductions, as stated.

In March, the Fed increased interest rates by a quarter point, following a reduction of the fed funds target rate to zero in early 2020.

Tom Simons, a money market economist at Jefferies, predicts that the Fed will raise interest rates by 50 basis points at its May 3 meeting. He believes that the Consumer Price Index (CPI) should not affect this decision. If the CPI comes in significantly higher than expected, he expects the Fed to consider a 75-basis-point hike or an intermeeting hike. However, Simons considers this idea to be unrealistic. A basis point is equal to 0.01%.

According to Simons, energy prices in CPI are predicted to increase by 18% in March. He stated that the first half of March experienced a sharp rise due to the Russian invasion, while food prices also saw a similar trend but not to the same extent. However, housing is expected to have a significant impact.

The cost of a home in CPI is predicted to increase by approximately 0.5% annually, while rents are expected to rise by 0.6% each month. However, shelter costs, which account for one-third of CPI, are anticipated to increase by 4.6% annually.

"I believe there is a possibility that it will exceed the early 1990s' highest increase in shelter costs," Swonk stated.