The latest Consumer Price Index data released by the Bureau of Labor Statistics showed a 3.5% increase in US consumer prices for the 12 months ended in March, up from February’s 3.2% rate. Surging gas prices and high shelter costs contributed to this increase, with monthly prices remaining unchanged from February’s 0.4% gain. Gas and shelter costs accounted for more than half of the monthly increase, with prices rising in most major categories except for a few such as used and new cars and fuel oil. The unexpected rise in inflation complicates the timeline for rate cuts from the Federal Reserve.
The hotter-than-expected inflation data caused US futures to tank on Wednesday, with Dow futures falling 400 points and futures on the S&P and Nasdaq also slipping. Treasury yields topped 4.5% in response to the inflation data. The pace of price hikes slowed considerably in 2023, but progress hit a roadblock at the beginning of this year and moved into reverse. Chief financial analyst for Bankrate, Greg McBride, commented that an interest rate cut in June is now unlikely due to the surge in inflation.
Economists had been expecting a 0.3% monthly increase and an annual rate of 3.4%, according to FactSet consensus estimates. The Federal Reserve has been waiting for meaningful progress on inflation before considering rate cuts. While the headline index can be influenced by volatile categories such as food and energy, central bankers often focus on the core index, which excludes these categories. However, core CPI did not slow as expected, rising 0.4% from the previous month and maintaining an annual rate of 3.8%. Economists had anticipated a 0.3% monthly gain and a lower annual rate of 3.7%.
The path to lower inflation remains bumpy with the unexpected rise in consumer prices in March. This development could delay any potential rate cuts from the Federal Reserve. The surge in gas prices and high shelter costs have driven the increase in inflation, with the monthly prices remaining unchanged except for a few categories. The Federal Reserve may need to see more progress on inflation before considering any monetary policy changes.
Overall, the unexpected rise in inflation in March complicates the timeline for potential rate cuts from the Federal Reserve. The surge in gas prices and high shelter costs contributed to the increase in consumer prices, with the core CPI also rising more than expected. The unexpected inflation data caused US futures to fall, with Dow futures dropping 400 points. The path to lower inflation remains uncertain, with the Federal Reserve closely monitoring the situation before making any decisions on monetary policy changes.
