As sky-high interest rates remain the hot topic of late, with the U.S. Federal Reserve recently electing to increase its benchmark interest rate by 25 basis points, it is that time of the month again when market participants analyse the latest U.S. Consumer Price Inflation (CPI) data. Seeing that the federal funds rate was recently increased to its highest level since September 2007, it is evident that market participants are hoping for a continued downtrend in price levels to pave the path for the FED to pause rate hikes.
With “all eyes laser-focused on March’s CPI report,” U.S. equity futures have ticked higher as inflation comes in “cooler than expected.” The annual U.S. CPI figure comes below expectations at 5% for March, significantly down from 6% for February, indicating that inflation may be on a sustained downward path. Market participants will be relieved to note that the annual increase in the all-items index of 5% for March represents the “smallest 12-month increase since the period ending May 2021.” On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers (CPI-U) increased by 0.1% in March after rising by 0.4% in February. While the food index remained unchanged in March, there was a notable decline in the energy index, which fell by 3.5% in March after ticking down by only 0.6% in February. Over the last 12 months, the energy index has declined by 6.4%, but the shelter index remains high, increasing by 0.6% month-over-month and surging by 8.2% over the last 12 months. While headline inflation declined significantly to 5% for March, core inflation remains stubbornly high.
The latest CPI data has most definitely increased the likelihood of a pause in the FED’s rate-hiking cycle in the next FOMC meeting in May. However, market participants will know that the disinflationary process still has some way to go before inflation comes down to the much-desired 2% target rate.
Sources: Bloomberg, CNBC, FX Street, U.S. Bureau of Labor Statistics, Wall Street Journal
Disclaimer: Trive South Africa (Pty) Ltd, Registration number 2005/011130/07, and an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 2002 (FSP No. 27231). Any analysis/data/opinion contained herein are for informational purposes only and should not be considered advice or a recommendation to invest in any security. The content herein was created using proprietary strategies based on parameters that may include price, time, economic events, liquidity, risk, and macro and cyclical analysis. Securities involve a degree of risk and are volatile instruments. Market and economic conditions are subject to sudden change, which may have a material impact on the outcome of financial instruments and may not be suitable for all investors. When trading or investing in securities or alternative products, the value of the product can increase or decrease meaning your investment can increase or decrease in value. Past performance is not an indication of future performance. Trive South Africa (Pty) Ltd, and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered from using or relying on the information contained herein. Please consider the risks involved before you trade or invest.