US inflation increases more than expected in March

US inflation rose above expectations in March, mainly driven by higher costs of gasoline and rents, which accounted for more than half of the increase in consumer prices last month.

The consumer price index rose 0.4% month on month in March, unchanged from February, but ticked above 0.3% consensus, while annualized inflation increased 3.5% in March, compared to a 3.2% rise in February and also beat expectations for 3.4% rise.

Core inflation, excluding the volatile food and energy components, increased 0.4% last month, advancing by the same margin in February and year on year 3.8% increase in March, also matching February’s figure. 

Stronger than expected rise in US consumer prices in March contributed to doubts on timing of the start of easing monetary policy, which markets widely expected to commence in June.

The US Federal Reserve has a 2% inflation target, with consumer prices being in a downward trajectory from 9.1% peak in June 2022.
Consumer prices continue to run in desired direction and policymakers see recent unexpected rise in inflation as a temporary phenomenon, which should not have significant impact on expected rate cuts.

On the other hand, the central bank stated that their decisions will directly depend on economic data and that they are not in rush to start cutting interest rates, many economists expect that first rate cut could be expected as early as July or even later, due to the latest data from the US.

The labor report, released last Friday, showed stronger than expected rise in hiring in the US, as well as lower unemployment, which continues to point to tight labor market and is likely to influence Fed’s monetary policy plans.

Although economists remain divided on timing of Fed’s rate cut, majority expect several cuts during 2024 and a very small number have an opinion that the window for rate cuts has closed.