US inflation beats Wall Street estimates, rises 0.4% in March; Fed's June rate cut hopes fade away

US inflation increased more-than-expected in March 2024 mostly driven by petrol and shelter costs, pushing away hopes of a June interest rate cut from the US Federal Reserve. The US consumer price index (CPI) rose 0.4 per cent sequentially--higher than Wall Street estimates, according to data released by the Labor Department's Bureau of Labor Statistics on Wednesday, April 10. 

In the 12 months through March, the CPI increased 3.5 per cent year-on-year (YoY)--the biggest gain in six months (since September 2023). This follows a 3.2 per cent rise in February 2024. Measured from a year earlier, these core prices were up 3.8 per cent, unchanged from the YoY rise in February. The Fed closely tracks core prices it provides a reliable print of where inflation is headed in the world's largest economy.

Also Read: US inflation rises moderately at 0.3% in February, consumer spending jumps; Fed rate cuts on table

US inflation: Key metrics

The shelter and gasoline or petrol prices accounted for more than half of the increase in the monthly CPI, according to the Labor Department. According to a survey of economists conducted by Dow Jones Newswires and The Wall Street Journal, the CPI was projected to gain 0.3 per cent on the month and advancing 3.4 per cent on a year-on-year basis.

Gas prices surged 1.7 per cent from February to March and clothing costs 0.7 per cent. The average cost of auto insurance jumped 2.6 per cent last month and is up 22 per cent from a year ago, partly reflecting purchases of higher-priced vehicles. Shelter costs, which include rents, rose 0.4 per cent, same as February.

Also Read: World markets today: US stocks sink after March inflation data, Treasury yields jump

Food prices rose 0.1 per cent, though grocery food inflation was unchanged at 2.2 per cent, amid declines in the costs of butter and cereals and bakery products, which recorded their largest monthly decrease since 1989. But prices for meats and eggs rose. There was a modest increase in the prices of fruits and vegetables.

Average auto repair costs increased 1.7 per cent from February to March and are up a sharp 8.2 per cent from a year earlier. The price of gas to power most vehicles surged 1.7 per cent last month. Prices for new and used cars, however, declined slightly.

The inflation surge that followed the pandemic jacked up the costs of food, gas, rent and many other items. Though inflation has since plummeted from its peak of 9.1 per cent in June 2022, average prices are still well above where they were before the pandemic. However, the disinflationary trend has virtually stalled in recent months.

Fed's June rate cuts hopes fade away

This is the third straight month when the inflation reading is well above the Fed's two per cent target, provide concerning evidence that inflation is stuck at an elevated level after having steadily dropped in the second half of 2023. With today's inflation print, leading financial markets anticipate that the Fed would delay cutting interest rates until September 2024.

Also Read: US Fed keeps benchmark rates steady at 23-year high-mark, projects 3 rate cuts in 2024: 5 key highlights

“We’re still a far cry from the central bank’s two per cent target – and the policymakers will need to be a lot more convinced, and over a few months too, before they pivot,'' said Nigel Green, Founder and CEO of deVere Group.

Fed Chair Jerome Powell has repeatedly said the US central bank is in no rush to start lowering borrowing costs. Powell has stressed that the Fed’s policymakers need more confidence that inflation is steadily slowing to their target level before they will support a rate cut. 

The central bank has kept its policy rate in the 5.25 per cent-5.50 per cent range since July, which is its the highest level in 23 years as it attempts to bring inflation back down firmly to its long-term target of two per cent. It has raised the benchmark overnight interest rate by 525 basis points since March 2022.

Earlier this month, Fed chair Jerome Powell told a conference in California that the current risks to the US economy were "two-sided," with negative consequences for the economy if policymakers moved to cut rates too fast or too slow. The risk of cutting too soon was that "inflation does move up," he said, adding it "would be quite disruptive if we were to come back in" to raise rates.

‘’If the US economy continues to evolve as expected, most policymakers still expect it will be appropriate to begin lowering the policy rate at some point this year,'' he added. "Today's report shows inflation has fallen more than 60 per cent from its peak, but we have more to do to lower costs for hardworking families," said US president Joe Bided in a statement. "Prices are still too high for housing and groceries, even as prices for key household items like milk and eggs are lower than a year ago,'' added President Biden.