• March’s CPI rise undermines the Fed’s hopes for a soft landing by reducing rate hikes.
• Latest softer-than-expected PPI, boosted markets

Inflation continues to surprise, with the consumer-price index rising significantly for the third consecutive month in March and exceeding forecasts for the fourth successive month.

This trend significantly undermines the Federal Reserve’s hopes of orchestrating a soft economic landing as rate cut expectation got pushed back for later this year.

Source: Fred

The CPI increased by 0.4% in March, repeating February’s rise after January’s 0.3% increase. This consistent three-month trend indicates more than a temporary fluctuation, with the annual price index reaching 3.5%. Significant contributions to the March increase came from shelter and gasoline, with rent and energy costs notably impacting consumers.

The core CPI, excluding food and energy, continued its upward trend with a 0.4% rise in March, marking the third month in a row at this rate.

Over the past year, core inflation has reached 3.8%, persistently above the Federal Reserve’s 2% target.

At the start of 2024, there were expectations of 7 rate cuts; now, they are down to 2.

Investors now foresee the Federal Reserve beginning these rate reductions at its September meeting, with one more cut expected by year’s end.

Despite high inflation, the job market and consumer spending continue to be robust.

Oil prices have surged past $85 a barrel. Meanwhile, producer prices have cooled off, providing some relief to markets concerned about persistent inflation.

The latest wholesale price data, out Thursday, came in slightly lower than economists’ expectations. The 10-year Treasury yield remained above 4.5%^[1], but the S&P 500 and Nasdaq retraced all of their losses from the hotter-than-expected CPI data the day prior.

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1. Tradingview