U.S. inflation refuses to bend, fanning fears it will get stuck
A key U.S. price gauge topped forecasts for a third straight month on gains in rents and transportation costs, spurring concerns that inflation is becoming entrenched as the economy keeps powering ahead.
The so-called core consumer price index, which excludes food and energy costs, increased 0.4% from February, according to government data out Wednesday. The year-overyear rate was unchanged at 3.8%, defying expectations for a downtick.
Paired with recent reports showing the labor market and economic activity have also been stronger than expected, investors no longer see much chance that the Fed will feel a need to start easing interest rates anytime soon.
“The sound you heard there was the door slamgauge, ming on a June rate cut. That’s gone,” David Kelly, JPMorgan Asset Management’s chief global strategist, said on Bloomberg Television.
Wednesday’s Bureau of Labor Statistics report revealed ongoing strength in rents, the largest components of the CPI. Forecasters have long been awaiting a deceleration based on leading indicators, but progress has more or less stalled over the past nine months.
Services inflation, meanwhile, accelerated — largely thanks to car insurance, repairs and other categories tied to transportation, as well as healthcare. Coregoods prices were a bright spot, resuming a downward trend that helped drive disinflation in the second half of 2023.
One important caveat: Rents, auto insurance and other items in the March CPI data will be more muted in the Fed’s preferred the personal consumption expenditures price index. That’s because they’re weighted less heavily in that report, which comes out later this month.
Still, the numbers were enough to completely reorder bets on the timing of Fed rate cuts. Before the report, traders were assigning roughly even odds to a first cut in June, according to futures. The chances of such a move dropped to about one in five afterward, and December is now the first month showing betterthan-even odds of a cut.
Higher-for-longer interest rates might pose fresh challenges to President Joe
Biden’s reelection campaign. Higher gasoline prices won’t help either.
While economists see the core gauge as a better indicator of underlying inflation than the overall CPI, the latter measure climbed 0.4% from the prior month and 3.5% from a year ago, marking an acceleration from February that was boosted by rising energy costs.
A separate report Wednesday, combining the inflation data with figures on wages published last week, showed real earnings growth decelerated, rising at the slowest annual pace since May.