US consumer inflation accelerates in March, dampening rate cut hopes

US consumer inflation continued to accelerate last month, according to US government data published on Wednesday, reducing the chances of an early interest rate cut from the Federal Reserve (Fed) in a tense election year.

The data raise the likelihood that the first Fed rate cut will come right before November’s presidential election, which would thrust the independent US central bank into the middle of a fractious fight between US President Joe Biden and his likely opponent, former president Donald Trump.

The annual consumer price index (CPI) came in at 3.5% in March, up 0.3 percentage points from February, the Labour Department said in a statement.

This was slightly above expectations of a 3.4% rise, according to a survey of economists conducted by Dow Jones Newswires and The Wall Street Journal.

Monthly inflation came in at 0.4%, also slightly above expectations.

All three major Wall Street indices fell in early trading on Wednesday, while the yield on two- and 10-year US Treasuries jumped higher, as traders digested the prospect of a later start to rate cuts.

“Today’s report shows inflation has fallen more than 60% from its peak, but we have more to do to lower costs for hard-working families,” Biden said in a statement.

“Prices are still too high for housing and groceries,” he continued, urging grocery stores to “use record profits to reduce prices”.

“INFLATION is BACK – and RAGING!” Donald Trump posted to his social media site, Truth Social, yesterday.

“The Fed will never be able to credibly lower interest rates, because they want to protect the worst president in the history of the United States!” he added.

Kiss June cut goodbye

The Fed has raised interest rates to the highest level in 23 years as it attempts to bring inflation back down firmly to its long-term target of 2%.

Price increases have slowed significantly from their peak in 2022, but have crept higher in recent months, keeping the markets guessing about when the Fed could start cutting rates, even as other indicators of US economic strength have remained resilient.

“You can kiss a June interest rate cut goodbye,” Bankrate chief financial analyst Greg McBride wrote in a note to clients.

“Inflation came in higher than expected, the lack of progress toward two percent is now a trend,” he added.

The indexes for shelter and gasoline together contributed “over half” of the monthly increase, according to the Labour Department.

A widely watched inflation measure excluding volatile food and energy prices rose at an annual rate of 3.8%, in line with the data from February.

The so-called “core” inflation index rose 0.4% in March from a month earlier, according to the Labour Department.

“The lack of downward momentum in core inflation will be met with some discomfort,” at the Fed, EY senior economist Lydia Boussour wrote in an investor note.

“Some Fed officials are growing increasingly uneasy about cutting rates amid inflation stickiness,” she added.

AFP