US consumer prices increased more than expected last month amid rises in the costs of gasoline and shelter, casting further doubt on whether the Federal Reserve will start cutting interest rates in June.
The consumer price index (CPI) rose 0.4 percent last month after advancing by the same margin in February, the US Department of Labor’s Bureau of Labor Statistics (BLS) said yesterday.
Gasoline and shelter costs, which include rents, accounted for more than half of the increase in the CPI.
Photo: EPA-EFE
In the 12 months through last month, the CPI increased 3.5 percent also as last year’s low reading dropped out of the calculation. That followed a 3.2 percent rise in February.
The US central bank has a 2 percent inflation target. The measures it tracks for monetary policy are running considerably below the CPI rate.
Economists polled by Reuters had forecast the CPI gaining 0.3 percent on the month and advancing 3.4 percent on a year-on-year basis.
Though the annual increase in consumer prices has declined from a peak of 9.1 percent in June 2022, the disinflationary trend has slowed in recent months.
Following last week’s stronger-than-expected job growth last month as well as a drop in the unemployment rate to 3.8 percent from 3.9 percent in February, some economists have pushed back rate cut expectations to July. Others still believe the Fed will move in June. A minority see the window for rate cuts closing.
Fed Chair Jerome Powell has repeatedly said that the US central bank is in no rush to start lowering borrowing costs.
Financial markets saw a roughly 56 percent probability of the Fed cutting rates at its June 11-12 policy meeting, according to CME’s FedWatch Tool. The Fed has kept its policy rate in the 5.25-5.50 percent range since July last year. It has raised the benchmark overnight interest rate by 525 basis points since March, 2022.
Excluding the volatile food and energy components, the core CPI gained 0.4 percent last month after a similar rise in February and January. In the 12 months through last month, the core CPI rose 3.8 percent, matching February’s increase.
“Data was hotter than expected, both on the top line and the core number, and that’s driven futures down because it’s indicative of sticky inflation and the potential for the Fed to either cut fewer times or not at all in 2024,” Dakota Wealth Management LLC senior portfolio manager Robert Pavlik said.
“I don’t think it speaks to the need for a rate hike, but stocks have to be re-priced for a different environment which is presenting itself with this inflationary data.”
Yields across US government bonds spiked after the consumer price data was released, with the yield on the 10-year note last at 4.4927 percent.
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