United States: Accelerated Energy-Driven Inflation and Monetary Policy Response

■ Price-related data since March shows signs of accelerating short-term inflation, centered on energy items.  

■ Stable natural gas prices, a stronger dollar, and policy interest rates with a dampening effect on the economy give the US more policy options than other countries. 
 
Since March, the US has been releasing price-related statistics, and the price trend and inflation expectations following the sharp rise in energy prices are gradually becoming clearer. In March, both the overall Consumer Price Index (CPI) (up 3.3% year-on-year) and the core CPI excluding food and energy (up 2.6% year-on-year) saw faster growth. A significant increase in energy prices, such as gasoline and fuel oil, pushed the overall index's month-on-month increase to its highest level since June 2022. However, as of March, the price transmission of housing costs, which account for the largest share, and most goods and services, remained relatively limited, and the core CPI, reflecting the underlying trend, rose at a relatively moderate pace. 

 
Survey data also indicates that inflation will accelerate in the short term. In the March ISM Business Climate Index, both the purchasing price index and the delivery delay index rose sharply in both the manufacturing and non-manufacturing sectors, indicating faster increases in procurement costs and longer supplier delivery cycles. The New York Fed's March consumer expectations survey showed that while 3-year (3.1%) and 5-year (3.0%) inflation expectations changed only slightly from February, 1-year (3.4%) inflation expectations rose significantly. The preliminary April University of Michigan consumer survey also showed that the cumulative increase in 1-year (4.8%) inflation expectations since March was greater than that in 5-year (3.4%) inflation expectations. Overall, while the expectation of accelerating short-term inflation is relatively clear, no significant changes in medium- to long-term inflation expectations have been observed so far. The Cleveland Fed's immediate projections (as of April 13) indicate that the overall CPI (up 3.58% year-on-year) is expected to accelerate further in April, while core CPI (up 2.56% year-on-year) is expected to remain roughly the same as in March. 

 
West Texas Intermediate (WTI) crude oil futures, the benchmark price for US crude oil, rose sharply, similar to benchmark oil prices in Europe and Asia. Still, Henry Hub futures, the benchmark price for natural gas, remained stable despite sharp price increases in Europe and Asia. Compared to Europe and Asia, the rise in US energy prices has been relatively small. Coupled with the strengthening of the US dollar since March, this is expected to alleviate some inflationary pressures. Currently, the rise in energy prices has not yet translated into a significant increase in the underlying inflation rate or medium- to long-term inflation expectations. It is anticipated that the Federal Reserve (FRB) will continue to monitor the duration of energy price increases, the price transmission process, and the supply and demand of goods and services. Meanwhile, the policy interest rate target range has been set above the neutral interest rate, giving the US greater policy space than the Eurozone and Japan in observing price trends.