Inflation came in hot at 3.5% in March, CPI report shows. Fed could delay rate cuts.
Inflation ran hot for a third straight month in March, raising questions about when the Federal Reserve will feel confident that price pressures are subdued and it can begin cutting interest rates.
Overall prices increased 3.5% from a year earlier, up from 3.2% in February, driven largely by the rising cost of rent and gasoline, according to the Labor Department’s consumer price index. On a monthly basis, costs rose 0.4%, similar to the previous month.
What is core inflation right now?
Core prices, which exclude volatile food and energy items and are watched more closely by the Fed, increased 0.4% in line with February's rise. That kept the annual increase at 3.8%.
Is inflation really going down?
Since reaching a 40-year high of 9.1% in June 2022, inflation has slowed dramatically. But after rapid improvement in the fall, price increases have accelerated on a monthly basis to a range of 0.3% to 0.4% so far this year.
Products such as used cars, furniture and appliances have gotten less expensive as pandemic-induced supply bottlenecks have unwound, though goods prices jumped in February. But the cost of services such as rent, car insurance and transportation keep rising, in part, because pandemic-related pay increases have slowed only gradually as worker shortages have eased.
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Barclays expects the monthly price gains to slowly moderate, bringing down yearly inflation to 3% and core price increases to 3.1% by the end of the year – still well above the Fed’s 2% goal.
Are interest rates going down in 2024?
In recent weeks, Fed Chair Jerome Powell has said the uptick in prices in the first two months of the year could have been a blip and inflation is still heading toward the 2% target “on a sometimes bumpy path.”
But the larger-than-expected rise in March could set off more worries that market-friendly interest rate cuts will be pushed back, especially with the economy and labor market performing so robustly recently.
The futures market is now betting the Fed's first rate cut will be pushed back to September, with the Fed lowering rates just twice this year. It had been predicting the first cut in June and a total of three decreases in 2024, in line with Fed officials' median estimate last month.
In a note to clients Wednesday, economist Paul Ashworth of Capital Economics wrote, "The third consecutive 0.4% (monthly) rise in core CPI pretty much kills off hopes of a June rate cut."
And Kathy Bostjancic, Nationwide's chief economist, said the report "will undermine Fed officials’ confidence that inflation is on a sustainable course back to 2% and likely delays rate cuts to September at the earliest and could push off rate reductions to next year.”