According to the US Consumer Price Index (CPI) statistics for March, the core index, which excludes volatile food and energy items, grew faster than market expectations for the third consecutive month. This suggests that inflationary pressures are picking up again, potentially delaying the start of U.S. interest rate cuts expected this year.
Key Point
- Core CPI rose 0.4% month-on-month – market expected 0.3% rise
- 3.8% increase compared to the same month last year – expected 3.7% increase
- February increased by 0.4% compared to the previous month, and increased by 3.8% compared to the same month last year
- Composite CPI rose 0.4% month-on-month – expected 0.3% rise
- 3.5% increase compared to the same month last year – expected 3.4% increase
- February increased by 0.4% compared to the previous month, and increased by 3.2% compared to the same month last year
Economists place more emphasis on the core index than the headline CPI as a measure of underlying inflation.
Underlying Inflation in US Tops Forecasts for a Third Month
March CPI report indicates stubborn price pressures that will likely delay Fed
The year-on-year rate of increase in core CPI remains unchanged from February. The year-on-year rate of increase in the composite CPI accelerated from the previous month, driven by rising energy prices.
The latest data once again highlights the possibility that progress in curbing inflation is stalling, even as the U.S. Federal Reserve continues to maintain policy interest rates at the highest levels in 20 years. A strong labor market remains supportive of household demand, and the U.S. Federal Reserve remains eager to see more signs of sustained abatement in price pressures before cutting interest rates.
Over the past three months, core CPI has risen at an annualized rate of 4.5%, the largest increase since May last year.
After the data was released, US bond yields and the dollar soared, while US stocks opened sharply lower. In the swap market, expectations for a US interest rate cut within this year have receded.
“June interest rate cut has completely disappeared.”
“You could hear the door slamming shut for a June rate cut. This completely eliminates that possibility,” David Kelly, chief global strategist at JPMorgan Asset Management, said on Bloomberg Television. .
According to the Department of Labor’s Bureau of Labor Statistics (BLS), which released the data, gasoline and housing costs accounted for more than half of the month-on-month increase in the CPI. Car insurance, medical costs, and clothing are also on the rise. On the other hand, new and used car prices fell.
Housing costs, the largest item in the service sector, increased by 0.4% for the second consecutive month. Imputed rent (OER), which is the assumed rent for homeowners who rent out their homes, also rose by 0.4%.
According to Bloomberg calculations, prices for services excluding housing and energy rose 4.8% from a year ago, the largest increase since April 2023. Although policymakers have emphasized the importance of looking at these measures in determining the trajectory of U.S. inflation, they are actually based on another measure, the Personal Consumption Expenditures (PCE) price index. It is calculated.
The PCE price index does not have as large a weight on housing costs as the CPI. This is also why the PCE price index has been moving closer to the 2% target set by the U.S. Federal Reserve.
There will be one more release of the Producer Price Index (PPI) and PCE Price Index until May 1, when the results of the US Federal Open Market Committee (FOMC) meeting are announced. U.S. Federal Reserve officials have indicated that there will be no decision to cut interest rates at the meeting, effectively ruling out the possibility.
“Room for monetary easing is limited”
“Although the Fed is not targeting CPI, this provides another reason to delay the start of rate cuts or reduce the expected number of rate cuts this year,” said Kathy Jones, chief fixed income strategist at Charles Schwab. ” he pointed out. “If service sector inflation persists, there will be limited room for monetary easing,” she said.
“The Fed will likely take this data as a growing signal that disinflation is slowing,” said Anna Wong and Stewart Paul of Bloomberg Economics (BE). “We will delay it from June to July,” he said.
Unlike the services sector, goods prices have been falling persistently for most of the past year, providing some reassurance to consumers. However, economists predict that it will become less reliable as a disinflationary factor going forward. Core goods prices excluding food and energy fell 0.2% month-on-month.
Economists have long expected housing cost increases to ease somewhat, but so far that hasn’t happened. Energy prices are starting to rise again.
U.S. financial officials are also hesitant to cut interest rates given the strength in the labor market. That’s especially true after last week’s March jobs report showed much stronger-than-expected job growth and a decline in the unemployment rate. Separate statistics released on the 10th showed that the rate of increase in real average hourly wages has slowed, marking the first modest increase since May last year.
These are likely reasons why President Biden, who is seeking re-election, is losing momentum in the lead-up to the general election.
See table for detailed statistics.
Original title:US Core CPI Tops Forecasts Again, Likely Delaying Fed Rate CutsUS March Inflation Rises More Than Expected to 3.5% (excerpt)
(Updated with economist’s comments etc.)