Upturn in CPI raises fresh doubts over the likely extent of rate cuts this year.
10 April 2024
Stronger inflation data in the US both at the headline and core level for March is starting to be something of a regular feature (at least based on the last few months). US CPI in March rose by 0.4% at both core and headline, higher than the 0.3% expected, and means inflation on a yearly basis is now back up to 3.5% (from 3.2% last month). This cannot really be explained by a jump in energy costs alone as many classifications rose, from clothing to auto insurance to medicine, so for the June rate cut optimists this is a bit of a blow.
Markets have been wrestling with the likelihood of the Federal Reserve (Fed) delivering on three rate cuts this year, but, based on these numbers, two, totalling 50 basis points, may now be the more likely outcome. After all the Fed has been the only one in the room tempering expectations and now these expectations are hitting the wall of reality. Markets will likely follow.
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