The consumer price index accelerated faster than expected in March, pushing up inflation and likely dashing hopes that the Federal Reserve can cut interest rates soon.
The consumer price index (CPI), a broad measure of the cost of goods and services across the economy, rose 0.4% for the month, representing a 12-month inflation rate of 3.5%, or 0.3 percentage points higher than in February corresponds, the Labor Department’s Bureau of Labor Statistics reported Wednesday. Economists surveyed by Dow Jones had expected a 0.3% increase and a 3.4% increase year-over-year.
Excluding the volatile food and energy components, core CPI also rose 0.4% on a monthly basis, up 3.8% year-on-year, compared with respective estimates of 0.3% and 3.7%, respectively.
Stocks plunged after the report while Treasury yields soared.
Accommodation and energy costs were responsible for the increase in the overall index.
Energy rose 1.1% after rising 2.3% in February, while the cost of accommodation, which accounts for about a third of the weight in the consumer price index, rose 0.4% month-on-month and 5% year-on-year .7% increases. The expectation that housing costs will slow over the year has been at the heart of the Fed’s thesis that inflation will cool enough to allow interest rate cuts.
Food prices rose just 0.1% month-over-month and rose 2.2% year-over-year. However, there were some big gains in the grocery category.
The value of meat, fish, poultry and eggs rose 0.9%, driven by a 4.6% increase in egg prices. Butter fell 5% and cereals and baked goods fell 0.9%. Eating out increased by 0.3%.
Elsewhere, used car prices fell 1.1% and medical care prices rose 0.6%.
Rising inflation was also bad news for workers, as real average hourly wages remained flat month-over-month, rising just 0.6% last year, a separate BLS release said.
The report shows markets are nervous and Fed officials are expressing caution about the near-term direction of monetary policy. Central bank policymakers have repeatedly called for patience in cutting interest rates, saying they have not seen enough evidence that inflation is on a solid path back to its annual target of 2%. The March report likely confirmed fears that inflation is more stubborn than expected.
Markets had expected the Fed to begin cutting interest rates in June, with a total of three cuts expected this year, but things changed dramatically after the release. According to CME Group calculations, traders in the Fed funds futures market have pushed back their expectations for the first cut to September.
“There is not much evidence that this will result in a shift away from the hawkish bias,” said Fed official Liz Ann Sonders, chief investment strategist at Charles Schwab. “June is definitely off the table for me.”
The Fed also expects service sector inflation to ease over the course of the year, but that too has proven stubborn. Excluding energy, the services index rose 0.5% in March and was at an annual rate of 5.4%, out of line with the Fed’s target.
“This is the third strong reading in a row and means the faltering disinflationary narrative can no longer be described as a blip,” said Seema Shah, chief global strategist at Principal Asset Management. “Even if inflation cools to more comfortable levels next month, the Fed’s caution is likely now such that a rate cut in July could also be far-fetched, as that is when the U.S. election will begin to falter .” Fed decision making.
Later on Wednesday, the Fed will release minutes from its March meeting, which will provide further insight into officials’ stance on monetary policy.
Several Fed officials have expressed skepticism about rate cuts in recent days. Atlanta Fed President Raphael Bostic told CNBC that he expects only one rate cut this year, probably not until the fourth quarter. Gov. Michelle Bowman said an increase may even be necessary if the data doesn’t cooperate.
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2024-04-10 15:04:46
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