US CPI data to be released today: Will inflation show signs of trend reversal?

Today, the major focus in global markets will be on the release of US inflation data for March. The Bureau of Labor Statistics is set to release March 2024 CPI data today, April 10, 2024, at 8:30 a.m. Eastern Time. An eagerly awaited consumer price data on Wednesday will show if inflation is still falling, a trend that the Federal Reserve will consider when and by how much — if at all — to lower interest rates this year. The key question that remains unanswered as of now is whether inflation has cooled sufficiently for the Fed.

Released Just Now: US CPI data beats estimates, records sharpest rise in inflation since September

In February, the consumer price index increased by 3.2% YoY, surpassing the January rate of 3.1%. Even the monthly CPI data showed an increase. In February 2024, the US Consumer Price Index rose by 0.4%, marking the highest increase in five months, compared to the previous month’s 0.3% increase.

The Core inflation data that excludes food and energy also showed stickiness. In February 2024, the US core consumer price inflation rate reached a nearly three-year low of 3.8% but above market forecasts of 3.7%. Further, core inflation on monthly counts also came in above expectations. US core consumer prices increased by 0.4% in February 2024, above market expectations of 0.3%

The US Fed’s efforts to control inflation have not yielded complete victory to date. Inflation in the United States is sticky and is taking its own sweet time to fall to the target of 2%.

Headline Consumer price inflation in the United States has decreased significantly, falling from a high of 9.1% year on year in June 2022 to a low of 3% in June 2023. Since then, inflation has been around the 3% mark but now showing signs of a trend reversal.

Some market experts expect the upcoming CPI report is anticipated to reveal a surge in overall inflation, while the core inflation measure is expected to decrease and thereby delay Fed rate cuts. Amit Goel, Co-Founder and Chief Global Strategist at Pace 360 expects the first Fed rate cut to be in July – “On a year-over-year basis, we expect the headline inflation to rise to 3.4% (versus 3.2% prior), while the core should fall modestly to 3.7% (versus 3.8% prior).

We expect inflation to come down below 2% before the end of this year. We are extremely bullish on long-term government bonds in the US, Germany, and even India for the next year. We expect the first rate cut from the Fed by July and see 5-6 rate cuts by April 2025.”

ING Think team says, “We expect the core CPI print to be 0.3% month-on-month versus 0.4% in February – but this is still around double the 0.17% MoM rate that would, over 12 months, bring the YoY rate down to the 2% target.”

The March inflation data are likely to show a small drop in inflation, which could put the Fed on track to cut its benchmark rate three times this year, beginning as early as June.

However, with inflation data coming in higher than expected in January and February, a third strong reading might jeopardize the Fed’s plans and prevent some or all of those rate cuts at least in 2024.

Pranjal Bansal, Partner A A P T & Associates, Chartered Accountants says, “Market expectations for the April US Consumer Price Index (CPI) statement are mixed, with analysts predicting a mixed outlook. Consensus expects the 12-month charge to remain flat at 3.1%, suggesting a continuation of the gradual inflationary pressures seen in recent months. However, the median CPI rate, which excludes volatile food and energy charges, is expected to fall slightly from 3.9% to 3.7%.”

Central bankers at the Federal Reserve prefer tracking the core CPI index closely before taking a call on interest rates. The message that’s coming out of the US Fed is that the officials at the central bank are planning to lower the fed funds rate, but only when they are certain that inflation is under control.

Some global market experts are of the view that the Fed might start lowering interest rates in June if the inflation reports of March, April and May show a falling trend.

However, unexpectedly high inflation might postpone rate cuts or perhaps force the Fed to hike interest rates beyond their current 23-year peak, a possibility that wasn’t previously thought to be viable until Federal Reserve governor Michelle Bowman raised it in a speech last week.

Some analysts have questioned why interest rates should be decreased at all, given the strong economy. A healthy economy also allows the Fed’s officials to take their time deciding when and how much to lower borrowing costs for households and companies. Powell stated at a news conference last month that strong hiring alone would not necessitate a delay in rate decreases. He observed that, despite robust job gains last year, inflation fell due in large part to an increase in available labor, mostly as a result of more immigration.

The US economy is doing well, and as President Biden stated last week, “the US economy is the best in the world.” As things stand out, it appears that the battle against inflation will continue if price pressures in the economy prevail. The first-rate cut may come in 2025 until inflation is tamed.