US inflation increases moderately; consumer spending boosts Q2 outlook

<br /> US inflation increases moderately; consumer spending boosts Q2 outlook <br />

Washington, Apr. 26 (BNA): U.S. monthly inflation rose moderately in March, but stubbornly higher costs for housing and utilities suggested the Federal Reserve could keep interest rates elevated for a while.


The report from the Commerce Department on Friday, which also showed strong consumer spending last month, offered some relief to financial markets spooked by worries of stagflation after data on Thursday showed inflation surging and economic growth slowing in the first quarter, Reuters reported.


“Markets should breathe a sigh of relief this morning,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. “Given the elevated levels of inflation, and this is the new normal for 2024, the market is going to need to get over hopes for Fed rate cuts.”


The personal consumption expenditures (PCE) price index increased 0.3% last month, matching the unrevised gain in February, the Commerce Department’s Bureau of Economic Analysis said. Goods prices edged up 0.1% as increases in the costs of gasoline, clothing and footwear were partially offset by a decline in prices of motor vehicles and parts.


Services prices rose 0.4%, quickening from February’s 0.3% advance. They were boosted by a 0.5% increase in the cost of housing and utilities, which include rents. Rents have remained sticky even as the supply of apartments has increased and independent measures showed a decline in rent demands.


Economists expect that these lower rents should start showing up in the data at some point this year. Transportation services prices shot up 1.6%, while financial services and insurance were 0.5% more expensive.


In the 12 months through March, inflation rose 2.7% after advancing 2.5% in February. The increase in inflation last month was broadly in line with economists’ expectations.


There had been fears that inflation could exceed forecasts in March after the release of the advance gross domestic product report for the first quarter on Thursday showed price pressures heated up by the most in a year.


The spike in inflation occurred in January. The PCE price index is one of the inflation measures tracked by the U.S. central bank for its 2% target. Monthly inflation readings of 0.2% over time are necessary to bring inflation back to target.


U.S. Treasury prices rose, with the yield on the benchmark 10-year note backing away from a five-month high reached in the previous session. The dollar advanced versus a basket of currencies, while stocks on Wall Street were trading higher.


Fed policymakers are expected to leave rates unchanged next week. The central bank has kept its benchmark overnight interest rate in the 5.25%-5.50% range since July. It has raised the policy rate by 525 basis points since March 2022.


Financial markets initially expected the first rate cut to come in March. That expectation got pushed back to June and then September as data on the labor market and inflation continued to surprise on the upside.



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