US Annual Inflation Drops to 5% in March: CPI Print
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US Annual Inflation Drops to 5% in March: CPI Print

The latest CPI print showed that US annual inflation stood at 5% annually in March.
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The annual inflation rate eased to 5% in March, representing a bigger decline than economists’ estimates of 5.2%,. However, the annual core consumer price index (CPI) rose to 5.6% in March from 5.5% in February amid surging rent prices and higher used car costs.

Core Inflation Rose to 5.6% in March due to Higher Rent Prices

The new CPI data released on Wednesday showed that annual inflation in the US fell more than anticipated to 5% in March. The print compares with consensus estimates of 5.2% and 6% a month earlier.

On the other hand, core CPI – which disregards energy and food costs – rose to 5.6% last month from 5.5% in February, matching the economists’ expectations.

Month-over-month, CPI rose by 0.1%, compared to economists’ projections of a 0.3% increase. Core CPI advanced by 0.4% in March from February, per market expectations.

The drop in CPI comes amid a sharp decline in gas prices and a further retreat in food costs. However, Core CPI, an underlying inflation measure that better reflects long-term trends, remains much harder to tame due to surging rent and used car prices.

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Fed Expected to Enforce Another 25 BPS Hike in May

The new CPI data marks the ninth consecutive month inflation has declined in the US since peaking at 9.1% in June 2022. The Federal Reserve has consistently raised interest rates since March 2022 to tame the 41-year high inflation, delivering several jumbo hikes throughout last year.

However, inflation remains far above the Fed’s target of 2% despite the drop. As such, most market participants are expecting the Fed to implement another 25 basis points (bps) hike at its upcoming meeting on May 3.

The March jobs report showed that the labor market is finally cooling down, with the US adding 236,000 jobs last month, below the expected 239,000 jobs. However, the jobs market remains “very tight,” said economists at Bank of America, who also see the raising rates by 25 bps in May.

Minutes data from the Fed’s March meeting are also due to come out later today, with investors keeping an eye to gain more insight into the mindset behind the Fed’s 25 bps hike last month in the wake of the banking turmoil triggered by the collapse of the Silicon Valley Bank (SVB).

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