EconoFACTS

April 10, 2024 | 09:41

Oh Oh Another “Hot” U.S. CPI Report

Economist

Chief U.S. Economist and Managing Director
Economics

Scott Anderson is BMO’s Chief U.S. Economist and Managing Director. He analyzes and forecasts U.S. national and ... (Read more)

Scott Anderson , Ph.D.

Chief U.S. Economist and Managing Director
Economics

Scott Anderson is BMO’s Chief U.S. Economist and Managing Director. He analyzes and forecasts U.S. national and ... (Read more)

U.S. CPI inflation came in “hot” and above forecasts, increasing 0.4% in March. This is on par with February’s overheated increase and some of the strongest CPI inflation prints since last August and September. We have seen a strong uptrend in headline inflation so far this year and, really, since a subdued October print. Not the consumer inflation trend that Jay Powell and the rest of the FOMC want to see to start cutting interest rates. The Fed’s patience may soon be wearing thin. Treasury bonds are on the defense with yields exploding higher on the news. The 2-Yr yield is now 18.8 basis points higher, and 10-Yrs are up 13.7 bps. The fed funds futures market is no longer pricing in a Fed rate cut at either the June or July meeting, and is now putting the highest odds on the first cut happening in September.

The BLS noted that over half of the increase in inflation last month came from just two components: gasoline (+1.7%) and shelter (+0.4%). The details of the report were a mixed bag. We saw strong monthly price increases in many of the usual categories like services ex. energy (+0.5%), owners’ equivalent rent (+0.4%), and transportation services (+1.5%), while inflation appeared to heat up for medical care services (+0.6%), apparel (+0.7%), and electricity (+0.9%). Inflation cooled or remained subdued for food at home (flat), new (-0.2%) and used vehicle prices (-1.1%), and core commodities (-0.2%).

Core CPI inflation, excluding food and energy, also increased more than forecast, rising 0.4% last month and up 3.8% from a year ago, unchanged from February’s elevated pace. The consensus had been expecting a slowdown to 3.7%. Core inflation has been running at an overheated 0.4% m/m pace for three consecutive months now, double the rate seen last October when the Fed began seriously laying the groundwork to begin cutting interest rates this year. Even more concerning is the fact that the three-month and six-month moving averages of core and super-core inflation are accelerating while the Fed is trying to bring inflation to heel.

Bottom Line: The March CPI inflation report is an unwelcome message to the markets that the Fed’s inflation fight is far from over. Inflation remains the number one problem it still has yet to solve. Clearly, restrictive monetary policy has not yet fully done its work. A patient Fed with a Chair that is in “no rush” to cut interest rates must be mulling the possibility that it may need to do more to put a stake in inflation’s beating heart.

Table 1 - United States — CPI

(month/month % change : s.a.)

Source: BMO Economics, Haver Analytics