Wealth planning

US inflation gains momentum in March

Recent data and surveys suggest further increases in inflationary pressure, which should keep the Federal Reserve on track for further rate rises this year, writes Janet Mui.

12/04/2018

Janet Mui

Janet Mui

Global Economist

US headline consumer price index (CPI) rose from 2.2% Year-on-Year (YoY) to 2.4%, while core CPI picked up from 1.8% YoY to 2.1% as expected. The notable pick-up in inflation in March was well-flagged, as the plunge in wireless telecommunication prices in March 2017 dropped out of the annual comparison, resulting in a substantial positive base effect. Although the weighting of wireless telecommunication is only 1.7% of CPI, it accounted for 0.1% (out of 0.3%) of the annual change in core CPI this March.

In addition, the temporary weakness in medical care and housing showed signs of turning around, lifting core CPI. Headline CPI picked up by a lesser extent when compared YoY, as food and energy prices combined detracted 0.1% YoY in March.

In the next few months we are likely to see a continuation of positive base effect on core CPI. The producer prices report and the National Federation of Independent Businesses’ ‘intention to raise selling prices index’ in March suggested further pipeline inflation pressure.

Overall, recent data serves as a reminder that US inflation is gaining momentum. It should keep the Federal Open Market Committee on track for at least two more rate increases this year.

Author

Janet Mui

Janet Mui

Global Economist

Janet is an Economist working in the Investment Strategy Team and a CFA charterholder. She joined in 2011 and previously worked in Citi Hong Kong as an analyst in Global Portfolio Management and subsequently as a relationship manager to multi-national clients. Janet graduated with a BSc in Economics from the London School of Economics (first class honours), holds an MBA in Finance from the University of Cambridge and obtained a Postgraduate Certificate in Econometrics from Birkbeck College, University of London.

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