WASHINGTON: U.S. consumer prices increased more than expected in March as Americans paid more for gasoline and rental housing, leading financial markets to anticipate that the Federal Reserve would delay cutting interest rates until September.
The third straight month of strong consumer price readingsreported by the Labor Department on Wednesday followed on the heels of news last week that job growth accelerated in March, with the unemployment rate slipping to 3.8% from 3.9% in February.
Fed Chair Jerome Powell has repeatedly said the U.S. central bank is in no rush to start lowering borrowing costs.
The stubbornly higher cost of living looms large over theNov. 5 U.S. presidential election.
“The data does not completely remove the possibility of Fedaction this year, but it certainly lessens the chances the Fedis cutting the overnight rate in the next couple months,” saidPhillip Neuhart, director of market and economic research atFirst Citizens.
The consumer price index rose 0.4% last month after advancing by the same margin in February, the Labor Department’s Bureau of Labor Statistics said. Gasoline prices rose 1.7% after increasing 3.8% in February. Shelter costs, which include rents, rose 0.4%, matching February’s gain.
[US consumer inflation up unexpectedly in February][1]
Gasoline and shelter accounted for more than half of theincrease in the CPI. Food prices rose 0.1%, though grocery foodinflation was unchanged amid declines in the costs of butter andcereals and bakery products, which recorded their largestmonthly decrease since 1989.
But prices for meats and eggs rose. There was a modest increase in the prices of fruits and vegetables.
In the 12 months through March, the CPI increased 3.5%, themost since September, also as last year’s low reading droppedout of the calculation.
That followed a 3.2% rise in February.The Fed has a 2% inflation target. The measures it tracks formonetary policy are running considerably below the CPI rate.
Economists polled by Reuters had forecast the CPI gaining0.3% on the month and advancing 3.4% on a year-on-year basis.
Stalling disinflation
Though the annual increase in consumer prices has declinedfrom a peak of 9.1% in June 2022, the disinflationary trend hasvirtually stalled in recent months.
Shortly after the data, financial markets pushed back theirexpectations for the first rate cut to September from June,according to CME’s FedWatch Tool. They now expect only two rate cuts instead of the three envisaged by Fed officials last month.
A minority of economists see the window for rate cuts closing.
The central bank has kept its policy rate in the 5.25%-5.50%range since July. It has raised the benchmark overnight interestrate by 525 basis points since March 2022.
U.S. stocks opened lower. The dollar rallied against a basket of currencies. U.S. Treasury prices fell.
Excluding the volatile food and energy components, the CPIgained 0.4% last month after a similar rise in February andJanuary.
The so-called core CPI was boosted by a 0.5% increasein rents after rising 0.4% in February.
Owners’ equivalent rent (OER), a measure of the amounthomeowners would pay to rent or would earn from renting theirproperty climbed 0.4% after a similar rise in February.
There were also increases in the costs of motor vehicle insurance, healthcare, apparel and personal care. But prices forused cars and trucks, recreation, and new vehicles fell. Coregoods prices fell 0.2% after edging up 0.1% in February.
Services excluding energy rose a solid 0.5% after increasingby the same margin in February. In the 12 months through March, the core CPI rose 3.8%, matching February’s increase.
[1]: https://www.brecorder.com/news/40293299/us-consumer-inflation-up-unexpectedly-in-february## Heading ##