NOW HIKE GAS TAXES AND CRUSH DEMAND:

Inflation, as measured by the Consumer Price Index (CPI), was 8.5% over the last year--the highest since 1981. The monthly inflation rate was 1.2%--the highest since late 2005--driven mostly by a jump in gasoline prices. Under the hood, however, the data looks more encouraging; core CPI (which measures inflation excluding food and energy prices) increased by only 0.3% this month thanks to a drop in durable goods prices.

Last month, I wrote that the commodity price increases caused by the Russian invasion of Ukraine had not fully shown up in February's CPI report. That shock has showed up significantly in this month's report, with gas prices alone driving more than half the 1.2% monthly increase in the CPI. The good news is that there are reasons to be optimistic; gasoline price increases should abate, used vehicle prices declined significantly, and consumers continue to slowly renormalize their spending patterns.

Gas prices jumped 18.3% in March, the highest monthly increase since June 2009. Nominal gas prices are at their highest level ever, increasing nearly 50% over the last year alone. There are many reasons for this--an inability for the Organization of Petroleum Exporting Countries (OPEC) to hit its (lower than pre-pandemic) quotas, a push from domestic oil and gas shareholders to reign in production after years of unprofitability, and of course a drop in Russian exports of crude oil and natural gas.

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