US consumer inflation continued to accelerate last month, according to US government data published on Wednesday, reducing the chances of an early interest rate cut from the Federal Reserve.
The data also raise the likelihood that the first Fed rate cut could come right before November’s presidential election, which would thrust the independent US central bank into the middle of a fractious fight between Joe Biden and his likely opponent, former president Donald Trump.
The annual consumer price index (CPI) came in at 3.5 per cent in March, up 0.3 percentage points from February, the Labour Department said in a statement.
This was slightly above expectations of a 3.4 per cent rise, according to a survey of economists conducted by Dow Jones Newswires and The Wall Street Journal.
Monthly inflation came in at 0.4 per cent, also slightly above expectations.
“Today’s report shows inflation has fallen more than 60 per cent from its peak, but we have more to do to lower costs for hardworking families,” US president Joe Biden said in a statement.
“Prices are still too high for housing and groceries, even as prices for key household items like milk and eggs are lower than a year ago,” he continued.
“I’m calling on corporations including grocery retailers to use record profits to reduce prices,” he added.
The Fed has raised interest rates to the highest level in 23 years as it attempts to bring inflation back down firmly to its long-term target of two per cent.
Price increases have slowed significantly from their peak in 2022, but have crept higher in recent months, keeping the markets guessing about when the Fed could start cutting rates, even as other indicators of US economic strength have remained resilient.
“You can kiss a June interest rate cut goodbye,” Bankrate chief financial analyst Greg McBride wrote in a note to clients.
“Inflation came in higher than expected, the lack of progress toward two per cent is now a trend,” he added.
The indexes for shelter and gasoline together contributed “over half” of the monthly increase, according to the Labor Department.
A widely watched inflation measure excluding volatile food and energy prices rose at an annual rate of 3.8 per cent, in line with the data from February.
The so-called “core” inflation index rose 0.4 per cent in March from a month earlier, according to the Labour Department.
Earlier this month, Fed chair Jerome Powell told a conference in California that the current risks to the US economy were “two-sided,” with negative consequences for the economy if policymakers moved to cut rates too fast or too slow.
The risk of cutting too soon was that “inflation does move up,” he said, adding it “would be quite disruptive if we were to have to then come back in” to raise rates.
But if the US economy continues to evolve as expected, most Fed participants still expect it will be “appropriate to begin lowering the policy rate at some point this year,” he added.
Futures traders, who had placed a probability of more than 50 per cent that the Fed would cut rates by mid-June, sharply dialled back their expectations after the CPI figure was published, according to data from CME Group.
They now place a probability of just under 75 per cent that the first cut will have arrived by mid-September.
If this comes to pass, it would prove to be politically awkward for the Fed, as the first cut would come shortly before the presidential election.
In February, Trump accused Powell, who he first appointed to run the independent US central bank, of being “political,” suggesting the Fed could move ahead with interest rate cuts to help the Democratic party win reelection.
“I think he’s going to do something to probably help the Democrats,” Trump said in an interview with Fox Business.
“It looks to me like he’s trying to lower interest rates for the sake of maybe getting people elected,” he added.