The 'Everything's Fine' Number That Isn't Really Fine

This morning, the US Bureau of Labor Statistics delivered what Wall Street calls a “bullseye”. March CPI came in at exactly 3.3% year-on-year. Core inflation (strip out food and energy) landed at 2.6%. Both figures matched forecasts to the decimal point.

Markets opened higher. Tech rallied. Everyone exhaled.

But perhaps we should hold that breath…

What the number says vs. what it means

A CPI print that matches forecasts is good news in the narrow sense that nothing surprised anyone. But let’s park the “better than feared” framing for a moment and just look at the number itself. The Fed’s inflation target is 2%. We’re at 3.3% – and that’s after stripping the Strait of Hormuz disruption out of the headline calculation.

Core PCE – the Fed’s actually preferred gauge, released yesterday, is running at an annualised pace above 4% over the past three months. One macro strategist at Carson Group called it publicly what most are thinking privately: an “Emperor Has No Clothes” moment. Everyone can see inflation is running hot. The Fed is holding rates at 3.5-3.75% and watching.

The Strait of Hormuz situation is not resolved

Here’s the part the relief rally skipped over. The two-week US-Iran ceasefire announced Wednesday triggered a surge in equities and a crash in oil from near $100 to below $94. Markets priced in the end of the problem.

But more than 800 container ships are still stuck inside the Gulf. Iran is still restricting access to the strait despite the truce. The ceasefire has exactly zero verification mechanisms. And as Schwab’s chief investment strategist noted drily, bombing is still underway in the region.

Two weeks really isn’t a resolution; it’s a pause. Supply chain normalisation – that physical movement of ships, cargo, and inventory will take months, not days. The inflationary pressure from a 15% gasoline spike doesn’t simply evaporate when a ceasefire is announced. It works its way through the system slowly, showing up in transport costs, then consumer goods, then services. That process is already underway.

What the framework tells us

Run this through our NoBullNation macro lens, and a few things become clear.

Energy shocks are the classic mechanism for “transitory” inflation becoming sticky. When energy prices spike, the first effect hits headline CPI fast and visibly. The second-order effect: higher input costs for manufacturing, transport, and food production hit core inflation 3-6 months later, much slower and harder to reverse. We are currently at step one. Step two is baked in regardless of what happens in the Strait next week.

The Fed is in an uncomfortable position. They held rates at the March meeting despite one dissenter (that man Miran) wanting cuts. With core PCE above 4% annualised and energy-push inflation still feeding through the system, cutting rates now would be a significant gamble. But the job market is softening; job openings fell 5% in February, while hires fell 9.3%, which creates the other pressure. Their preferred outcome is for everything to stay roughly where it is, long enough for them to call it handled.

Markets, today, are cooperating with that narrative. Whether the ships stuck in the Gulf do is a different question.

The signal

The relief rally makes sense as a trade. As a view on where we actually are? Less so. Inflation is above target, energy disruption is paused, not resolved, and the Fed is holding its breath. The “bullseye” print today means this particular reading was priced correctly. It doesn’t mean the next one will be.

Watch the April CPI print due in May for whether the Hormuz disruption starts showing up in core goods. That’s the number that will tell you whether today’s exhale was warranted.

This is analysis, not financial advice. Always do your own research.