US Markets
Wednesday, April 10th, 2024 2:10 pm EDT
Key Points
- Acceleration of Consumer Price Index (CPI) in March: The CPI rose by 0.4% for the month, leading to a 3.5% 12-month inflation rate, which exceeded economists’ expectations. Core CPI, excluding volatile food and energy components, also accelerated, rising by 0.4% monthly and 3.8% annually, compared to estimates.
- Impact on Markets and Monetary Policy: Stock market futures declined, and Treasury yields spiked higher in response to the CPI report. The acceleration was primarily driven by increased shelter and energy costs. This surge in inflation likely dashed hopes for immediate interest rate cuts by the Federal Reserve, with expectations shifting to a delay in rate cuts until September, contrary to previous projections of cuts starting in June.
- Concerns and Skepticism Regarding Monetary Policy: The CPI report heightened concerns among Fed officials and market participants about the stickiness of inflation. Despite expectations for easing inflation through the year, there’s skepticism among some Fed officials regarding lowering rates, with projections suggesting only one rate cut this year, possibly not until the fourth quarter. Governor Michelle Bowman even suggested the possibility of an increase in rates if the data does not align with expectations.
In March, the consumer price index (CPI) surged unexpectedly, indicating a faster inflation rate than anticipated, which could thwart hopes for immediate interest rate cuts by the Federal Reserve. The Labor Department’s Bureau of Labor Statistics reported a 0.4% increase in the CPI for the month, pushing the 12-month inflation rate to 3.5%, exceeding economists’ predictions of a 0.3% gain and a 3.4% year-over-year level. Core CPI, excluding volatile food and energy components, also rose by 0.4% monthly and 3.8% annually, surpassing estimates. This news led to a decline in stock market futures and a spike in Treasury yields. The surge in the all-items index was primarily driven by higher shelter and energy costs, with energy rising by 1.1% and shelter costs increasing by 0.4% monthly and 5.7% annually. Food prices saw a modest 0.1% increase for the month but rose by 2.2% year-over-year, with notable increases in meat, fish, poultry, and egg prices, while used vehicle prices fell by 1.1% and medical care services prices increased by 0.6%. The report heightened concerns among market participants and Fed officials, who have been cautious about altering monetary policy direction. Although the Fed has been patient in cutting rates, citing insufficient evidence of inflation reaching its 2% annual target, the March report suggested a stickier inflation trend than previously thought. Market expectations for rate cuts shifted, with projections now pointing to a delay until September, according to CME Group calculations, and some analysts suggesting a more conservative approach to rate cuts may be warranted, especially given the stubbornness of services inflation. Despite expectations for easing inflation through the year, the strong CPI readings have cast doubt on the possibility of rate cuts in the near term, with some Fed officials expressing skepticism and suggesting a cautious approach to monetary policy adjustments.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/04/10/cpi-inflation-march-2024-consumer-prices-rose-3point5percent-from-a-year-ago-in-march.html
