U.S. consumer price inflation slowed to 5%. Although inflationary pressures have eased to their lowest level in nearly two years, they are still considered high.
On the 12th (local time), the U.S. Department of Labor announced that the Consumer Price Index (CPI) for March rose 5% compared to the same month last year. This is a significant slowdown from the 6% increase in the previous month and slightly below the market forecast of 5.1% compiled by Dow Jones.
This is the first time since September 2021 (5.4%) that the U.S. monthly CPI has recorded a 5% level. It is also the lowest level since May 2021 (5.0%). Accordingly, there is an assessment that the Federal Reserve's (Fed) monetary tightening is increasingly impacting policy effects. The Fed, which declared a war on inflation, began raising interest rates in March last year and has currently raised the U.S. benchmark interest rate to 4.75?5.0%.
The March CPI rose 0.1% compared to the previous month. This also slightly missed the forecast of 0.2%.
The core CPI, which excludes volatile energy and food prices, rose 5.6% year-over-year and 0.4% month-over-month, both in line with expectations. The year-over-year increase in core CPI, which shows the underlying price trend, exceeded the headline CPI increase for the first time in about two years.
By item, energy prices fell by 3.5%. Used car prices, which were considered a major cause of inflation early in the pandemic, dropped 11.2% year-over-year and 0.9% month-over-month. Medical costs also decreased. On the other hand, auto insurance, airfare, furniture, and new car prices all rose. Housing costs, which account for about one-third of the CPI, increased 8.2% year-over-year and 0.6% month-over-month.
However, this is still far above the Fed's inflation target and the average of 2.1% over the three years before the pandemic (global pandemic). Diane Swonk, chief economist at KPMG, said, "Better news than a year ago," but added, "Prices are not low." The Producer Price Index (PPI), a wholesale price indicator, will be released on the following day, the 13th.
Despite the CPI falling short of expectations, the market is still focused on a baby step (a 0.25 percentage point increase in the benchmark interest rate). According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on the morning of the day reflected more than a 66% chance that the Fed will take a baby step at the May FOMC meeting. This is slightly lower than the 72% level the previous day. The possibility of a rate freeze stands at the 33% level.
Steve Blitz, U.S. chief economist at TS Lombard, said, "The Fed will not move the needle," and pointed out the overheated labor market, saying, "The inflation problem will not solve itself. A higher unemployment rate is needed."
Currently, major index futures on the New York Stock Exchange are showing strength. In the New York bond market, U.S. Treasury yields fell. The 10-year U.S. Treasury yield is around 3.36%, and the 2-year yield, which is sensitive to monetary policy, is around 3.93%.
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