US inflation rose unexpectedly significantly in March: consumer prices rose by 3.5 percent compared to the same month last year. This is likely to delay the US Federal Reserve’s interest rate turnaround.
Inflation in prices in the USA unexpectedly accelerated significantly in March and is likely to delay the interest rate turnaround that the financial markets have been longing for. Consumer prices rose 3.5 percent compared to the same month last year, the US Department of Labor announced today. On average, analysts had only expected a rate of 3.4 percent. In February it was still at 3.2 percent.
“Inflation is showing its bristly side”
“Inflation is showing its bristly side,” said Bastian Hepperle from the Hauck Aufhäuser Lamp bank. At first the decline stopped, now annual inflation is even increasing again. In a month-on-month comparison, consumer prices also rose by 0.4 percent in March. An increase of 0.3 percent was expected here.
Meanwhile, the core inflation rate remained at 3.8 percent. Economists had forecast a decline to 3.7 percent. Compared to the previous month, core consumer prices rose by 0.4 percent. The US Federal Reserve Bank pays particular attention to the core rate. According to experts, it reflects the general price trend better than the overall rate because components that are prone to fluctuations such as energy and food are excluded.
The figures were eagerly awaited, as they are of great importance for the monetary policy of the world’s most important central bank – the US Federal Reserve. It wants to sustainably control the inflation rate towards its target value of 2.0 percent. Interest rate cuts are expected on the financial markets later in the year. Many market participants had recently assumed that the first reduction would take place in June.
Is the interest rate turnaround in the USA postponed?
However, that suddenly changed with the increase in inflation. According to the data, the futures markets have buried hopes that the central bank will make its first interest rate cut in June. This is now not expected until September: the probability of this is estimated at 74 percent.
“In view of these figures, the Fed will no longer be so confident that inflation will move ‘sustainably’ towards the two percent target,” say Commerzbank economists Christoph Balu and Bernd Weidensteiner. “Fed Chairman Powell mentioned this as a prerequisite for a rate cut.” They now also expect the US Federal Reserve to take its time raising interest rates beyond the middle of the year.
Market sentiment subdued
The surprisingly sharp rise in US inflation caused the stock markets to plummet in the afternoon. The DAX gave up initial price gains and turned negative. The prospect of a change in interest rates in the USA has fueled stock markets worldwide in recent months because it makes stocks more attractive compared to interest-heavy financial products and improves conditions for corporations.
However, even before the new data, Fed representatives had dampened expectations in view of the robust US economy, including a strong labor market and the stubborn inflation rate. Just yesterday, a Fed banker, Raphael Bostic, head of the regional central bank in Atlanta, spoke out and warned that the US central bank might forego interest rate cuts altogether this year.