Please see article below from Evelyn Partners detailing their thoughts on the US CPI inflation announcement for March 2024, received yesterday afternoon 10/04/2024.
What happened?
US March annual headline CPI inflation rose at 3.5% (consensus +3.4%) and compares with +3.2% in February. On a monthly basis, CPI rose 0.4% (consensus +0.3%), compared to an increase of 0.4% in January.
Turning our attention to the core figure, which excludes volatile food and energy prices, the annual number came in at 3.8% (consensus 3.7%), compared to 3.8% in February. In monthly terms, core CPI increased 0.4% (consensus 0.3%), which compares to 0.3% in February.
What does it mean?
March’s inflation report came in slightly above forecasters expectations with headline CPI re-accelerating slightly to 3.5%. However, core inflation remained unchanged, with today’s figure of 3.8%. Base effects proved a slight headwind to today’s release with March 2023’s headline monthly print of 0.1% falling out of the annual comparison. However, these base effects become more favourable next month and could help to reverse some of March’s acceleration in the annual inflation rate.
The index for shelter continued to remain resilient rising by 0.4% on the month. However, on an annual basis shelter inflation has slowed to 5.7% from its peak of 8.2% in March 2023. The monthly index for energy remained positive for the second consecutive month, having been falling for the previous four months as rising oil prices fed through to gasoline. However, on an annual basis energy inflation is running at an acceptable 2.1%.
There was some encouragement for households in the data, when it came to food prices, with the index increasing on the month by just 0.1%. On an annual basis the food inflation basket is now running at just 2.2%. Additionally, core goods shrank by 0.2% on the month, with both used and new cars driving this deceleration.
Turning to the labour market, March’s non-farm payroll figure of 303k looks solid when compared to the 10-year average of ~180k, taken from up to the end of 2019 before the pandemic distorted the data. Other measures of hiring outside of the payroll report also corroborate a healthy labour market. For instance, the latest February job openings (from the JOLTS survey) reported earlier this week came in at 8.8m, down from a peak of 12.0m in March 2022, but it is still significantly up from a pre-covid level of around 7.0m at the end of 2019. Essentially, the demand for available workers (employed plus job openings) is running around 2m higher than the supply of workers (employed plus unemployed). This labour supply gap supports wage growth which is currently growing at an annual rate of 4.1%. The risk is that while wage growth remains strong, the US economic resilience we’ve seen over the last year will continue, making it more challenging to return inflation back to the Fed’s 2% target.
Market interest rate expectations have moved substantially over the last three months. At the start of the year, futures markets anticipated the Fed would start cutting rates in March and make at least six 25 basis point rate cuts this year. Since then, optimism has been reined in, with markets now expecting the base rate to end 2024 at 4.85% with the first of these cuts now expected to materialise in July. This means markets are now pricing in less rate cuts than the Federal Open Market Committee who forecasted three cuts for 2024.
Immediately following the report US equity futures gained fell 1% while 10-year treasury yields rose 15 basis points.
Bottom Line
Although today’s inflation report was slightly warmer than expected, it is unlikely hot enough to warrant the FOMC to shift away from cutting rates later this year, which markets currently expect to start occurring during the summer. However, as recent inflation prints have pointed to a slowing path back to the Fed’s target of 2% we could see fewer rate cuts this year than the three currently forecasted by the FOMC at their latest meeting.
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Charlotte Clarke
11/04/2024