Consumers who were hoping to see interest rates start to drop on their credit cards could need to wait a few months longer for the first rate cut of 2024, thanks to higher than expected inflation in March.
The consumer price index rose 3.5% year over year in March, according to data released Wednesday by the U.S. Bureau of Labor Statistics. That's up from the 3.2% increase year-over-year number for February. February was viewed as a hot month when it came to inflation; and now the same is true for March.
Economists at KPMG called it the "spring heat wave."
On a month-to-month basis, inflation rose 0.4% in March, the same as February's level.
During the early months of 2024, inflation has proven to be more stubborn than some analysts had anticipated.
Stock prices tumbled Wednesday as traders tried to judge how the latest inflation report might offer some clues to the path of future rate cuts by the Federal Reserve.
The Dow Jones Industrial Average was down 422.16 points or 1.09% and closed at 38,461.51 points Wednesday.
Just a few weeks ago, many economists had expected the Federal Reserve to start cutting interest rates in June. The two-day Fed meeting will be held June 11 and June 12.
But higher-than-expected inflation numbers for March now make it more likely that the first rate cut will hit in September, not June, said Mark Zandi, chief economist for Moody's, after the latest CPI data was released. A two-day Fed meeting is scheduled for Sept. 17 and Sept. 18.
"Inflation continues to moderate, but too slowly to convince Fed officials that it is headed back to their target in a timely enough way," Zandi told the Detroit Free Press on Wednesday.
Kenneth Kim, senior economist at KPMG, wrote in a report Wednesday that inflation in the service sector is becoming more entrenched.
Kim concluded: "Our forecast for a rate cut was recently changed to September from June and the number of cuts reduced to two from three in 2024. In the absence of a notable improvement in inflation in the coming months, the Fed may only cut once this year. Market participants have thrown in the towel for a June easing after today’s CPI report."
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The Fed's target inflation level remains at 2% over the longer run. At its March meeting, the Fed held rates steady, indicating that "inflation has eased over the past year but remains elevated."
It should be no surprise to consumers who continue to dine out that one area where prices are spiking remains a category called "food away from home," which was up 4.2% in March year over year. The "food at home" category was up 1.2% year over year in March.