Elon Musk’s inflation duration warning

Consumer prices jumped 8.5% in March - the highest since 1981

It was a busy week for Elon Musk after he secured financing for his $43 billion Twitter bid and as Tesla reported record first-quarter results despite inflation headwinds. 

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Still, Musk noted that rising prices may be a bigger and longer challenge for the economy than currently anticipated. 

"Inflation is at like a 40 or 50-year high. And I think the official numbers actually understate the true magnitude of inflation…and that inflation appears to be likely to continue for at least the remainder of this year" he said on the electric-vehicle maker’s earnings call. He also explained how Tesla's suppliers are preparing.  "In some cases, we’re seeing suppliers request 20% to 30% cost increases for parts from last year to the end of this year" he disclosed. 

Elon Musk, Tesla CEO, stands in the foundry of the Tesla Gigafactory during a press event.  (Photo by Patrick Pleul/picture alliance via Getty Images / Getty Images)

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The consumer price index, which tracks multiple items including food, gas, rents, and health care, jumped 8.5% in March from the year-ago period, the fastest pace since December 1981, when inflation hit 8.9%. 

The producer price index is even higher, rising 11.2%. The diesel fuel component rose 20.4% driving the bulk of the increase. 

During the week, we also heard from Federal Reserve Chairman Jerome Powell, who signaled how policymakers are trying to tame inflation without sending the economy careening downward. 

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"Our goal is to use our tools to get demand and supply back in sync so that inflation moves down and do so without a slowdown that amounts to a recession," he said during a panel discussion at the International Monetary Fund and World Bank spring meetings. 

Federal Reserve Chair Jerome Powell (AP Photo/Jacquelyn Martin / AP Newsroom)

Powell also noted central bankers are prepared to be more aggressive with forthcoming rate hikes. 

"I also think there’s something in the idea of front end-loading whatever accommodation one thinks is appropriate. So that points in the direction of 50-basis points being on the table" he said. 

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His remarks jolted financial markets with all three of the major U.S. averages falling over 2% on Friday with the Dow Jones Industrial Average dropping nearly 1,000 points. 

Traders are now factoring a 70% chance of a 75 basis-point hike at the June meeting which would lift funds to 1.50%-1.75%, as tracked by the CME’s FedWatch Tool.

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On Thursday, investors will get the PCE Price Index, the Fed’s preferred measure of inflation, which is seen rising 5.3% annually in March, compared to a 5.4% jump in February which was near a 40-year-high.