Focusing on US inflation news in this article –
Short answer: likely not, inflation is sticky. Inflation ran hot in the first quarter, especially relative to the fourth quarter of 2023. The March Consumer Price Index (CPI) report was an unwelcome surprise. Both headline and core inflation (excluding food and energy) came in above expectations. Headline inflation is up 3.5% from last year.
It’s also helpful for comparing US inflation to other countries’ on an apples-to-apples basis. US Harmonized Index of Consumer Prices (HICP) is up 2.4% since last year, and core HICP (ex food and energy) is up just 1.9%. In March, core HICP rose just 0.2%, equivalent to an annualized pace of 2.3%. This should tell us that underlying inflation is not worrisome. Unfortunately, regular CPI is what is widely followed in the US.
Rate cuts get pushed out ?
The firm inflation data in Q1 likely pushes out the timing of the first interest rate cut by the Fed, perhaps to July at the earliest, if not September. There’s even less urgency to cut because the labor market continues to run strong. At the same time, there’s a lot more inflation data to come between now and June. The underlying data points to core inflation hitting the Fed’s estimate of 2.6% by the end of the year – and based on their own projection, that’s good enough for the cuts.
As Powell noted in his press conference in March, they didn’t sound victory bells when inflation really eased in the second half of 2023, and they’re not going to panic based on the Q1 data. The disinflation trend is likely on track, albeit with a few bumps along the way.
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