US Consumer Prices Rose 3.5% From A Year Ago In March, More Than Expected

• US consumer price index accelerated at a faster-than-expected pace in March, pushing inflation higher and likely dashing hopes that the Federal Reserve will be able to cut interest rates anytime soon.
• The CPI, a broad measure of goods and services costs across the economy, rose 0.4% for the month, putting the 12-month inflation rate at 3.5%, or 0.3 percentage points higher than in February, the Labor Department’s Bureau of Labor Statistics reported Wednesday. Economists surveyed by Dow Jones had been looking for a 0.3% gain and a 3.4% year-over-year level.
• Excluding volatile food and energy components, core CPI also accelerated 0.4% on a monthly basis while rising 3.8% from a year ago, compared with respective estimates for 0.3% and 3.7%.
• Energy rose 1.1% after climbing 2.3% in February, while shelter costs, which make up about one-third of the weighting in the CPI, were higher by 0.4% on the month and up 5.7% from a year ago. Expectations for shelter-related costs to decelerate through the year have been central to the Fed’s thesis that inflation will cool enough to allow for interest rate cuts.
• Increasing inflation was also bad news for workers, as real average hourly earnings were flat on the month and increased just 0.6% over the past year, according to a separate BLS release. The report comes with markets on edge and Fed officials expressing caution about the near-term direction for monetary policy. Central bank policymakers have repeatedly called for patience on cutting rates, saying they have not seen enough evidence that inflation is on a solid path back to their 2% annual goal. The March report likely confirmed worries that inflation is stickier than expected.
• Markets had expected the Fed to start cutting interest rates in June, with three reductions in total expected this year, but that shifted dramatically following the release. Traders in the fed funds futures market pushed expectations for the first cut out to September, according to CME Group calculations.
• Multiple Fed officials in recent days have expressed skepticism about lowering rates. Atlanta Fed President Raphael Bostic told CNBC that he expects just one cut this year, likely not coming until the fourth quarter. Governor Michelle Bowman said an increase may even be necessary if the data does not cooperate. Further, Liz Ann Sonders, chief investment strategist at Charles Schwab opined that “There’s not much you can point to that this is going to result in a shift away from the hawkish bent” from Fed officials. As such, in her view, a June cut is “definitively off the table.”

 (Source: CNBC)