US CPI Surges to 3.5% in March, Impacting Fed's Outlook

USD: US CPI Surges to 3.5% in March, Exceeding 3.4% Forecast

US CPI Data for the month of March came at 3.5% versus 3.4% expected and 3.2% printed in February month. The Gasoline and Shelter cost rose in March month contributed CPI rose in the March month. US Dollar index gained against counter pairs after the CPI rose faded the June month rate cut bets on FED side.

EURUSD is moving in Descending Triangle and market has reached support area of the pattern

In the United States, the inflation rate, measured by the Consumer Price Index (CPI), surged to 3.5% year-over-year in March, up from 3.2% in February, according to the report released by the US Bureau of Labor Statistics (BLS) on Wednesday. This exceeded market expectations, which had anticipated a 3.4% increase.

Meanwhile, the core CPI, which excludes volatile food and energy prices, also rose by 3.8% year-over-year in March, matching the previous month’s increase. On a monthly basis, both the CPI and the core CPI experienced a 0.4% rise, surpassing analysts’ forecasts of a 0.3% increase.

The BLS highlighted that the increase in the index for shelter and gasoline played significant roles in driving the overall monthly increase in the CPI. Specifically, these two indexes contributed to over half of the total rise in the index for all items. Additionally, the energy index saw a 1.1% increase during the month, while the food index rose by 0.1%. Within the food category, the index for food at home remained unchanged, whereas the index for food away from home rose by 0.3% over the month.

Stay tuned for live coverage of the US Consumer Price Index data and the market’s reaction to these figures.

USD: March’s Consumer Prices Surged 3.5% Year-Over-Year, Exceeding Expectations

USD Index is moving in box pattern and market has rebounded from the support area of the pattern

The Consumer Price Index (CPI) surged in March at a rate faster than anticipated, signaling a notable increase in inflation and dampening prospects for imminent interest rate cuts by the Federal Reserve.

According to the latest report from the Labor Department’s Bureau of Labor Statistics, the CPI, a comprehensive gauge of costs for goods and services across the economy, jumped by 0.4% for the month. This pushed the year-over-year inflation rate to 3.5%, marking a 0.3 percentage point uptick from February. Economists surveyed had forecasted a 0.3% monthly increase and a 3.4% year-over-year level.

When excluding volatile food and energy components, the core CPI also accelerated, rising by 0.4% on a monthly basis and climbing 3.8% from a year ago, surpassing expectations of 0.3% and 3.7%, respectively.

Following the release of the report, stocks experienced a decline while Treasury yields spiked.

The upswing in the all-items index was primarily propelled by increased shelter and energy costs. Energy prices surged by 1.1% after a 2.3% climb in February, while shelter costs, accounting for approximately one-third of the CPI, rose by 0.4% for the month and 5.7% from a year earlier. The Fed has been banking on a deceleration in shelter-related costs throughout the year to support its argument for potential interest rate cuts.

Food prices saw a modest uptick of 0.1% on the month and a 2.2% increase year-over-year. Notably, certain categories within the food segment witnessed substantial changes, with meat, fish, poultry, and eggs experiencing a 0.9% increase, largely driven by a 4.6% surge in egg prices. However, butter prices fell by 5%, and cereal and bakery products declined by 0.9%. Food away from home saw a 0.3% increase.

Elsewhere, used vehicle prices declined by 1.1%, while medical care services prices rose by 0.6%.

The heightened inflationary pressure also translates into stagnant real average hourly earnings for workers, which remained flat on the month and increased by a mere 0.6% over the past year.

The report underscores the cautious stance adopted by Fed officials regarding the trajectory of monetary policy. Despite market expectations of interest rate cuts starting in June and continuing throughout the year, the latest CPI data has shifted perceptions. Traders now anticipate the first cut to occur in September, according to CME Group calculations.

Fed policymakers have stressed the need for patience, emphasizing that they require more evidence to ascertain whether inflation is on a sustainable path toward their 2% annual target. The upcoming release of minutes from the March meeting will provide further insights into the Fed’s stance on monetary policy.

Recent remarks from Fed officials reflect skepticism toward rate reductions. Atlanta Fed President Raphael Bostic anticipates only one cut this year, likely in the fourth quarter, while Governor Michelle Bowman has suggested the possibility of an increase if the data fails to align with expectations.

USD: US CPI Accelerates, Likely Delaying Fed Rate Cut

GBPUSD is moving in box pattern and market has reached support area of the pattern

In March, consumer prices in the United States saw a higher-than-expected increase, driven by elevated costs for gasoline and rental housing, prompting financial markets to anticipate a delay in the Federal Reserve’s interest rate cut until September. This marks the third consecutive month of robust consumer price readings, following reports of accelerated job growth in March, which saw the unemployment rate decline to 3.8% from 3.9% in February. Federal Reserve Chair Jerome Powell has emphasized the central bank’s patience in initiating interest rate cuts.

The persistent rise in the cost of living holds significant implications, particularly as the U.S. presidential election on November 5 approaches. Phillip Neuhart, Director of Market and Economic Research at First Citizens, noted that while the recent data doesn’t completely rule out Fed action this year, it diminishes the likelihood of an overnight rate cut in the coming months.

According to the Labor Department’s Bureau of Labor Statistics, the Consumer Price Index (CPI) increased by 0.4% in March, matching February’s gain. Gasoline prices rose by 1.7%, while shelter costs, including rents, also climbed by 0.4%, mirroring the previous month’s increase. Gasoline and shelter costs accounted for more than half of the CPI’s overall rise. Food prices saw a modest increase of 0.1%, with declines in the costs of butter and cereals and bakery products offsetting the rise.

On a year-on-year basis, the CPI surged by 3.5% in March, the highest since September, following a 3.2% rise in February. While the Fed maintains a 2% inflation target, the measures it tracks for monetary policy have been running considerably below the CPI rate.

Financial markets reacted swiftly to the data, with expectations for the first rate cut being pushed back to September from June. There is now anticipation of only two rate cuts instead of the previously envisaged three. The Fed has maintained its policy rate in the range of 5.25%-5.50% since July, having raised the benchmark overnight interest rate by 525 basis points since March 2022.

Excluding volatile food and energy components, the core CPI increased by 0.4% last month, boosted by a 0.5% rise in rents. Owners’ equivalent rent (OER), a measure of housing costs, also climbed by 0.4%. Additionally, there were increases in the costs of motor vehicle insurance, healthcare, apparel, and personal care. However, prices for used cars and trucks, recreation, and new vehicles declined. Core goods prices fell by 0.2%, while services excluding energy rose by a solid 0.5%.

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