Economics
Consumer prices rose 3.5% from a year ago in March
The consumer price index accelerated at a faster-than-expected pace in March, pushing inflation higher and likely dashing hopes that the Federal Reserve will be able to cut interest rates anytime soon.
The CPI, a broad measure of goods and services costs across the economy, rose 0.4% for the month, putting the 12-month inflation rate at 3.5%, or 0.3 percentage point higher than in February, the Labor Department’s Bureau of Labor Statistics reported Wednesday. Economists surveyed by Dow Jones had been looking for a 0.3% gain and a 3.4% year-over-year level.
Excluding volatile food and energy components, core CPI also accelerated 0.4% on a monthly basis while rising 3.8% from a year ago, compared with respective estimates for 0.3% and 3.7%.
Stocks slumped after the report while Treasury yields spiked higher.
Shelter and energy costs drove the increase on the all-items index.
Energy rose 1.1% after climbing 2.3% in February, while shelter costs, which make up about one-third of the weighting in the CPI, were higher by 0.4% on the month and up 5.7% from a year ago. Expectations for shelter-related costs to decelerate through the year have been central to the Fed’s thesis that inflation will cool enough to allow for interest rate cuts.
Food prices increased just 0.1% on the month and were up 2.2% on a year-over-year basis. There were some big gains within the food category, however.
The measure for meat, fish, poultry and eggs climbed 0.9%, pushed by a 4.6% jump in egg prices. Butter fell 5% and cereal and bakery products declined by 0.9%. Food away from home increased 0.3%.
Elsewhere, used vehicle prices fell 1.1% and medical care services prices rose 0.6%.
Increasing inflation was also bad news for workers, as real average hourly earnings were flat on the month and increased just 0.6% over the past year, according to a separate BLS release.
The report comes with markets on edge and Fed officials expressing caution about the near-term direction for monetary policy. Central bank policymakers have repeatedly called for patience on cutting rates, saying they have not seen enough evidence that inflation is on a solid path back to their 2% annual goal. The March report likely confirmed worries that inflation is stickier than expected.
Markets had expected the Fed to start cutting interest rates in June with three reductions in total expected this year, but that shifted dramatically following the release. Traders in the fed funds futures market pushed expectations for the first cut out to September, according to CME Group calculations.
“There’s not much you can point to that this is going to result in a shift away from the hawkish bent” from Fed officials, said Liz Ann Sonders, chief investment strategist at Charles Schwab. “June to me is definitely off the table.”
The Fed also expects services inflation to ease through the year, but that has shown to be stubborn as well. Excluding energy, the services index increased 0.5% in March and was at a 5.4% annual rate, inconsistent with the Fed’s target.
“This marks the third consecutive strong reading and means that the stalled disinflationary narrative can no longer be called a blip,” said Seema Shah, chief global strategist at Principal Asset Management. “In fact, even if inflation were to cool next month to a more comfortable reading, there is likely sufficient caution within the Fed now to mean that a July cut may also be a stretch, by which point the US election will begin to intrude with Fed decision making.”
Later Wednesday, the Fed will release minutes from its March meeting, providing more insight into where officials stand on monetary policy.
Multiple Fed officials in recent days have expressed skepticism about lowering rates. Atlanta Fed President Raphael Bostic told CNBC that he expects just one cut this year, likely not coming until the fourth quarter. Governor Michelle Bowman said an increase may even be necessary if the data does not cooperate.
The Federal Reserve’s key inflation measure rose more than expected in February while consumer spending also posted a smaller than projected increase, the Commerce Department reported Friday.
The core personal consumption expenditures price index showed a 0.4% increase for the month, putting the 12-month inflation rate at 2.8%. Economists surveyed by Dow Jones had been looking for respective numbers of 0.3% and and 2.7%.
Core inflation excludes volatile food and energy prices and is generally considered a better indicator of long-term inflation trends.
In the all-items measure, the price index rose 0.3% on the month and 2.5% from a year ago, both in line with forecasts.
At the same time, the Bureau of Economic Analysis report showed that consumer spending accelerated 0.4% for the month, below the 0.5% forecast. That came as personal income posted a 0.8% rise, against the estimate for 0.4%.
Stock market futures moved lower following the release as did Treasury yields.
Federal Reserve officials focus on the PCE inflation reading as they consider it a broader measure that also adjusts for changes in consumer behavior and places less of an emphasis on housing than the Labor Department’s consumer price index. Shelter costs have been one of the stickier elements of inflation and rose 0.3% in the PCE measure.
“It looks like a ‘wait-and-see’ Fed still has more waiting to do,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. “Today’s higher-than-expected inflation reading wasn’t exceptionally hot, but it isn’t going to speed up the Fed’s timeline for cutting interest rates, especially given the uncertainty surrounding tariffs.”
Good prices increased 0.2%, led by recreational goods and vehicles, which increased 0.5%. Gasoline offset some of the increase, with the category falling by 0.8%. Services prices were up 0.4%.
The report comes with markets on edge that President Donald Trump’s tariff intentions will aggravate inflation at a time when the data was making slow but steady progress back to the Fed’s 2% goal.
After cutting rates a full percentage point in 2024, the central bank has been on hold this year, with officials of late expressing concern over the impact the import duties will have on prices. Economists tends to consider tariffs as one-off events that don’t feed through to longer-lasting inflation pressures, but the encompassing scope of Trump’s tariffs and the potential for an aggressive global trade war are changing the stakes.
Correction: Consumer spending increased 0.4% in February. An earlier headline misstated the number.
This is breaking news. Please refresh for updates.
Get Your Ticket to Pro LIVE
Join us at the New York Stock Exchange!
Uncertain markets? Gain an edge with CNBC Pro LIVE, an exclusive, inaugural event at the historic New York Stock Exchange.
In today’s dynamic financial landscape, access to expert insights is paramount. As a CNBC Pro subscriber, we invite you to join us for our first exclusive, in-person CNBC Pro LIVE event at the iconic NYSE on Thursday, June 12.
Join interactive Pro clinics led by our Pros Carter Worth, Dan Niles, and Dan Ives, with a special edition of Pro Talks with Tom Lee. You’ll also get the opportunity to network with CNBC experts, talent and other Pro subscribers during an exciting cocktail hour on the legendary trading floor. Tickets are limited!
These big inherited IRA mistakes can shrink your windfall
Checks and Balance newsletter: Who is (or was) the smartest person in government?
Judge orders CFPB to reinstate fired employees, preserve records and get back to work
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
The Essential Practice of Bank and Credit Card Statement Reconciliation
Are American progressives making themselves sad?
-
Blog Post7 days agoHow to Navigate 65A Compliance for NYC Nonprofits
-
Finance7 days agoBonds as protection play against stock market volatility
-
Finance1 week agoNKE, FDX, MU and more
-
Economics1 week agoChicago Fed President Goolsbee sees rate cuts depending on inflation progress
-
Accounting1 week agoAICPA ASB proposes 5-year plan
-
Personal Finance7 days agoAre designer handbags an actual investment? Here’s how returns stack up
-
Personal Finance1 week agoTariffs are 'simply inflationary,' economist says: Here's how they fuel higher prices
-
Personal Finance4 days agoTrump pick to lead Social Security faces questions on DOGE involvement