Bad news! Underlying inflation in the US overshot expectations for a third consecutive month in March, vexing data released on Wednesday showed.
Core price growth ran 0.4% last month, ahead of the 0.3% consensus and a throat punch to the so-called “whisper” number, which was leaning towards a 0.2% undershoot.
The unrounded print was 0.359%. If you’re the glass half-full type, you might argue this was another “cool” 0.4%, but spin aside, March marked the third consecutive (rounded) 0.4% MoM gain. So, a second dubious encore — on core.
These readings are inconsistent with the YoY prints returning to the Fed’s target. Indeed, the 12-month pace was 3.8% for March, unchanged from the prior month’s annual rate. On an unrounded basis, the YoY reading actually moved higher.
This is a Groundhog Day moment for Fed officials. Jerome Powell and co. were really (really) hoping to avoid another upside CPI “surprise.”
Note the scare quotes around “surprise.” I’m not sure how surprising this actually is. It feels like some Fed officials (and they’re not alone) are in a state of denial. Core inflation may not be going back to 2% in the US, or at least not sustainably.
Headline price growth overshot too, by the way, rising 0.4% MoM and 3.5% YoY, according to Wednesday’s release.
The breakdown showed shelter and gas accounted for half of the all-items increase. Grocery prices were unchanged for a second month in March. The annual rate of food at home inflation was just 1.2%. That, at least, was good news.
In addition to shelter, increases in car insurance, health care and clothes contributed to the stubbornly elevated core reading. Used and new car prices receded.
OER ran 0.438% MoM, effectively unchanged from February’s pace. Rent of primary residence slipped to 0.4%. Those are still too warm. Shelter disinflation’s not playing out quickly enough. Plain and simple.
The CPI-derived “supercore” measures were — and I’ll be generous — not good. The MoM services ex-shelter print was 0.68%, up markedly from February’s 0.50% pace. Similarly, the services ex-OER and rent print was 0.65%, meaningfully faster than the prior month’s 0.47%.
Bottom line: Between this and last week’s payrolls upside, you can forget about a June rate cut from the Fed. It’s off the table. As in: Not going to happen absent some exogenous shock to the system.
I suppose July’s still possible, but frankly, the more likely scenario is a cut in September and then in December. The median dot for 2024 will probably shift up in the June SEP.
“It has now become very difficult to envision 75bps of rate cuts this year,” BMO’s Ian Lyngen said, in the wake of Wednesday’s data. “Overall, the [CPI] figures materially undermine the Fed’s assumption that January/February were simply a bump in the road toward normalization.”
It’s difficult to envision a rate cut period this year.
Agreed. Based on 1Q data, greater chance of a rate hike(s) before year-end.
Hard to believe the Fed would cut rates going into the elections unless the data was undeniably supportive of a cut.
How many more months of too-high inflation will it take to entirely erase the market’s remaining rate cut expectations? I’ll guess one + extrapolation.
In 2024, US government spending is expected to be $2.8T in excess of taxes. This is not sustainable without ongoing inflation that “bites hard”.
My kids are all college (STEM) educated, job hopping where they can (to make more money), and attempting to live below their means: tiny and/or older apartments, not eating out, driving older cars, increasing deductibles on their car insurance, etc. It spite of being willing to “delay gratification”, it is questionable whether that day of gratification will ever be available to them- saving enough money to buy a house, having enough money to raise children and living the type of life they lived growing up (we were upper middle class). They regularly talk about how impossible it is for them to have an achievable financial plan to achieve this in a reasonable time period.
When I graduated from college (mid 80’s)- it was not difficult to put together a financial plan to be upwardly mobile/financially better off than my parents (middle class). Now, that goal seems much more difficult to achieve, let alone have as a reasonable goal.
And my kids are fortunate compared to the vast majority.