US Inflation Update

Data Preview & Forecast

• MUFG forecasts March 2026 core CPI monthly growth (MoM) of 0.25% and annual growth (YoY) of 2.56%.
• The base effect is expected to contribute only 0.06% points to YoY growth in core CPI, the lowest contribution since early 2022.
• The direct impact to energy prices from the war will be reflected in March’s CPI, but secondary effects on manufactured goods and non-energy categories will likely appear with a lag.
• What to watch out for: Fuel surcharges are expected to push up airline fares and shipping/logistics prices in March, where growth in these categories would otherwise be flat or negative for the month. Used car prices are expected to move out of negative growth territory, while new car prices are expected to see little change.

Market Thoughts

• Base-case view: We think that the market will be sensitive to if the core reading is a rounded up or a rounded down 0.3%. The market is expecting a strong oil passthrough into headline, but if core inflation is largely driven by the one-off oil shocks (i.e., fuel surcharges), a consensus number could prompt a small initial rally in rates. However, in our opinion, it will be difficult for a rally to be sustained given that there are lagged effects still at play from the oil move.
• Upside risk: If core CPI comes in well above 0.3% MoM, and it's driven by underlying inflation resurgence, rates would see a decent sell-off led by the 2yr, but buyers likely cap the move at ~3.9%.
• Downside risk: Overall, a softer inflation reading would likely be dismissed as a start of a trend given the concerns over oil prices.