US March Inflation Rate Widens... Treasury Bonds and Stock Market Remain Stable (Update)

March CPI Rises 0.6% Due to Soaring Oil Prices and Base Effects
Core CPI Increases by 0.3%

[Image source=AP Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] Although the US Consumer Price Index (CPI) rose, the US Treasury market and the New York stock market have not shown significant fluctuations. It is assessed that the CPI did not increase significantly beyond expectations.

On the 13th (local time), the US Department of Labor announced that the March CPI rose by 0.6% compared to the previous month. The increase was larger than the 0.4% rise in the previous month and slightly higher than the market expectation of 0.5%.

The year-on-year CPI increase rate reached 2.6%, compared to 1.7% in the previous month. This was also slightly higher than the expected 2.5%. The year-on-year increase rate was the highest since August 2018.

The core CPI, which the Federal Reserve (Fed) refers to when adjusting the benchmark interest rate, rose by 0.3%. The previous month's increase was 0.1%, and the expectation was 0.2%.

Excluding the volatile energy and food sectors, the core CPI rose 1.6% on an annual basis, slightly exceeding the expected 1.5%. The previous month saw a 1.3% increase.

CNBC reported that although this CPI was slightly higher than market expectations, the inflation was not large enough to shock the market.

The reason for the CPI increase was oil prices. CNBC stated that half of the CPI increase was due to energy prices. Oil prices rose by 9.1% in March alone.

The Wall Street Journal (WSJ) commented that the March CPI increase signals the beginning of the base effect from the COVID-19 pandemic that started a year ago. WSJ forecasts that the CPI will rise significantly until May due to the base effect but the rate of increase will slow down from June.

With the rapid recovery of the US economy amid expanded vaccine distribution and the overlapping base effect, the market expects the CPI to exceed the Fed's target management level of 2% considerably.

According to a WSJ survey, economists expect the June CPI to reach 3% and to decrease to 2.6% by December.

However, the Fed maintains its stance that the inflation rise is temporary and continues its easing policy.

The market appears undisturbed by the CPI announcement. The yield on the US 10-year Treasury bond, which is greatly affected by inflation increases, slightly fell to 1.669% compared to the previous day.

The Nasdaq index, which tends to fall when bond yields rise, started trading up 0.5%. The Dow Jones Industrial Average started down 0.2%.