March CPI Report: Coming in Hot…

March 2024 CPI Reports Higher Inflation Figures Than Predicted

The latest data from the Bureau of Labor Statistics, released Wednesday morning, revealed that consumer prices in the United States surged more than anticipated in March.

The Consumer Price Index (CPI) indicated a 0.4% increase from the previous month and a 3.5% rise compared to the same period last year, marking a faster acceleration than February’s 3.2% annual increase. These figures were in line with the month-over-month increase seen in February, surpassing economists’ expectations of a 0.3% monthly rise and a 3.4% annual increase, as per Bloomberg data.

The unexpected surge in inflation presents a challenge for the Federal Reserve as it navigates the delicate task of bringing inflation back down to its 2% target. Fed officials have acknowledged the journey to reach this target as “bumpy.”

Market reactions were swift, with investors now adjusting their expectations. Initially projecting six cuts in interest rates at the beginning of the year, updated Bloomberg data now suggests only two 25 basis point cuts are anticipated for the year.

On a “core” basis, which excludes volatile food and gas costs, prices increased by 0.4% compared to the previous month and 3.8% compared to the previous year, mirroring February’s data. These numbers surpassed economists’ projections of a 0.3% monthly rise and a 3.7% annual increase.

The release of this data caused market turbulence, with the 10-year Treasury yield surging more than 14 basis points to surpass 4.5% for the first time in 2024.

In response to the data, markets are now pricing in an 80% chance that the Federal Reserve will maintain interest rates at its June meeting, a significant increase from the roughly 40% chance indicated the day before.

Investors are also hedging their bets on future rate cuts, with expectations shifting towards a higher probability that the central bank will refrain from cutting rates in July. It is now widely expected that the first rate cut will occur in September.

Key highlights from the inflation report include a notable increase in the shelter index, which rose by 5.7% annually and 0.4% on a monthly basis, accounting for over 60% of the total 12-month increase in core prices. Economists attribute the persistent rise in shelter costs as a major contributor to the elevated core inflation readings.

Energy prices, particularly gas prices, continued to climb, driving the increase in headline inflation. The motor vehicle insurance index also saw a significant rise in March, while the apparel index increased moderately. Other indexes that registered increases in March include personal care, education, and household furnishings and operations.

Although the food index saw a 2.2% increase over the past year, food prices remained relatively stable from February to March, with food at home holding steady while food away from home experienced a slight uptick.