Bank of America projects a sharp acceleration in headline consumer inflation for March, forecasting a 0.9% month-over-month increase in the Consumer Price Index. The firm attributes the bulk of that rise to energy, where it expects prices to jump 10.6% on a monthly basis in connection with the Iran war.
On the underlying measure that excludes food and energy, BofA's forecast calls for core CPI to increase 0.3% month-over-month. The bank translates that monthly rise into a 3.1% annualized rate, a pace it notes is still above the level typically consistent with the Federal Reserve's 2% core personal consumption expenditures target.
Breaking down contributors to the core reading, BofA expects used cars to be one source of upward pressure, projecting a 1.0% month-over-month rise that would add roughly 0.23% to core goods. Core services are forecast to climb 0.28% on the month. Within services, shelter costs are expected to remain comparatively stable, reflecting what BofA describes as cooler rent inflation.
While energy-driven moves in headline inflation are pronounced, the bank cautions that March may be too soon to see large spillovers from the Iran conflict into core inflation measures. BofA analysts said they will watch airfares and delivery services closely for early signs that higher oil prices are passing through into broader categories of consumer prices.
Using its CPI and producer price index projections, Bank of America estimates core personal consumption expenditures (PCE) inflation will rise 0.20% month-over-month in March, a slowdown from its estimated trailing three-month average of 0.37%. Despite the monthly cooling, BofA expects the year-over-year core PCE rate to increase to 3.1%, driven by base effects.
The bank also notes that this set of projections is unlikely to satisfy Federal Reserve policymakers who take a hawkish view, given the persistent strength in the labor market combined with upside risks to inflation noted in its outlook.
Methodology note: The projections above are derived from Bank of America's CPI and producer price index forecasts as described by the bank's analysts.