Indexes Drop, Yields Increase as March Inflation Exceeds PredictionsIndexes Drop, Yields Increase as March Inflation Exceeds Predictions

March saw high inflation for the third consecutive month, which begs the issue of when the Federal Reserve will be able to start lowering interest rates because it will know that pricing pressures have abated.

Consumer price index (CPI) data from the Labor Department shows that overall prices rose 3.5% from a year ago, up from 3.2% in February, mostly due to higher rent and gas prices. Similar to the previous month, prices increased by 0.4% on a monthly basis.

What is the current core inflation rate?
Core prices, which are more carefully monitored by the Fed and do not include volatile food and energy categories, rose by 0.4% in line with February’s gain. This maintained the 3.8% annual growth rate.

Will inflation actually decline?
In June 2022, inflation hit a 40-year high of 9.1%; since then, it has sharply decreased. However, following a sharp improvement in the autumn, monthly price rises have escalated to a range of 0.3% to 0.4% so far this year.

Although goods prices spiked in February, products including secondhand automobiles, furniture, and appliances have become less costly as supply bottlenecks caused by the epidemic have unraveled. However, the price of goods and services like housing, auto insurance, and transit is going up, partly due to the fact that COVID-related wage hikes have only somewhat decreased as the labor shortage has subsided.


By year’s end, Barclays anticipates that monthly price growth would gradually slow down, lowering annual inflation to 3% and core price increases to 3.1%, which is still much more than the Fed’s 2% target.

In 2024, will interest rates decline?
The Federal Reserve Chair Jerome Powell has stated in recent weeks that inflation is still approaching the 2% objective “on a sometimes bumpy path” and that the price increase in the first two months of the year may have been an exception.

But with the economy and labor market doing so well lately, there may be increased concerns about the market-friendly interest rate reduction being delayed as a result of the larger-than-expected increase in March. According to the median estimate of Fed officials, three rate reductions this year are anticipated by futures markets, with the first one occurring in June.

However, economist Paul Ashworth of Capital Economics stated in a note to clients on Wednesday that “the third consecutive 0.4% (monthly) rise in core CPI pretty much kills off hopes of a June rate cut.”

Kathy Bostjancic, chief economist at Nationwide, said the data “will undermine Fed officials’ confidence that inflation is on a sustainable course back to 2% and likely delays rate cuts to September at the earliest and could push off rate reductions to next year.”

In an effort to control inflation, the Fed has raised its benchmark short-term rate from close to zero to a 22-year high of 5% to 5.25% since March 2022; but, since July, authorities have taken a break. Higher rates tend to reduce economic activity by raising the cost of borrowing for consumers and businesses.


What is the current state of the US stock market?
The rising rate of inflation caused stock values to decline. The Dow Jones Industrial Average dropped 0.84% and the S&P 500 dropped 0.73% as of 10:45 a.m. ET as investors were more apprehensive that the anticipated interest rate reduction would not occur as soon as anticipated. The inflation-sensitive 10-year Treasury bond’s price dropped, raising the yield on the bond to 3.1%.

One of the main issues in the presidential race is likely to be inflation. In a statement, President Joe Biden stated that although inflation has decreased by almost 60% since its high, more has to be done to control expenses.

“Even though the cost of essential household items like milk and eggs has decreased compared to a year ago, housing and grocery prices remain excessively high,” stated Biden.

Why are gas prices going up once more?
In March, gas prices increased by 1.7%, marking the second rise following four consecutive months of decreases. The war between Russia and Ukraine has limited Russia’s supply of crude oil. As the spring driving season approaches and manufacturers transition to more costly summer blends, demand is also increasing.

Will 2024 rents decline?
More than half of the monthly rise in overall costs was due to the cost of housing and gas combined.

In March, rent rose by 0.4%, a modest decrease from the previous month but the most recent in a string of significant increases. This caused the yearly increase to drop from 5.8% to a still high 5.7%. Based on new contracts, economists anticipate a moderating of rent rises; nevertheless, this has only slightly impacted current leases.

Certain other services also continued to go upward in price. Healthcare costs rose by 0.6%, vehicle insurance by 2.6%, and auto repairs by 1.7%. Nevertheless, due to a decline in aircraft fuel prices, airfares fell 0.4%.

More positively, the prices of some items decreased: appliances decreased by 0.7%, new automobiles by 0.2%, and used cars by 1.1%. However, the cost of furniture climbed by 0.3% and clothing by 0.7%.

Are food costs rising or falling?
For a second month in a row, grocery prices remained stable, bringing the yearly increase to a still-moderate 1.2% and offering customers ongoing respite from significant price increases throughout the epidemic.

Prices for bread decreased by 0.9%, breakfast cereal by 1.6%, and cookies by 1.2%.

However, proteins often increased. Amidst another avian flu epidemic, the price of raw ground beef went up 0.7%, bacon went up 0.9%, and eggs went up 4.6%.

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