U.S. Inflation Accelerates Higher in March

Inflation chart | Image by Andriy Onufriyenko/Getty Images

March is the fourth consecutive month with higher-than-expected inflation, a data point that could cause the Federal Reserve to maintain its current policy trajectory of higher for longer.

The Consumer Price Index, a key inflation measure, rose 0.4% in March and 3.5% over the last 12 months, or 0.3 percentage points higher than in February, the U.S. Bureau of Labor Statistics (BLS) reported Wednesday.

Core CPI also increased more than expected in March, rising 0.4% month over month and 3.8% year over year.

According to the report, shelter and gasoline were the main contributors to monthly inflation. Other price increases were reflected in motor vehicle insurance, energy, medical care, apparel, and personal care. In addition to recreation, new and used vehicles both saw price drops.

While food prices at grocery stores remained unchanged, prices at restaurants and other dine-out establishments rose 0.3% over the month.

“Higher labor costs have pressed restaurants to raise prices for their patrons. And consumer demand for take-out that consistently matches and outpaces overall retail spending – despite far weaker price trends for groceries – will allow restaurants to continue to hike menu prices,” wrote Kurt Rankin, PNC senior economist, in a note to clients, which was sent to The Dallas Express.

With headline and core inflation outpacing consensus expectations for another month and remaining well above the Central Bank’s 2% target, there is more uncertainty around the timeline for rate cuts and more pressure on the commercial real estate finance market.

“The Fed’s targeted average of 2.0% year-over-year inflation remains well off from March’s core inflation result, undermining arguments in favor of more urgent Fed easing,” said Rankin.

Even though Fed policymakers have penciled in three rate cuts in the latest Dot Plot, Wednesday’s higher-than-expected reading dashed Wall Street’s forecast to just two rate cuts by the end of 2024.

“This marks the third consecutive strong reading and means that the stalled disinflationary narrative can no longer be called a blip,” said Seema Shah, chief global strategist at Principal Asset Management, per CNBC.

“In fact, even if inflation were to cool next month to a more comfortable reading, there is likely sufficient caution within the Fed now to mean that a July cut may also be a stretch, by which point the U.S. election will begin to intrude with Fed decision making,” added Shah.

As of the market close on Wednesday, there was a 40% chance the Federal Reserve would approve a 25 basis point cut in July and a 45.5% chance in September, according to the Fed Rate Monitor Tool.

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