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.
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.
Janet Mui, CFA is the global economist at Cazenove Capital, the wealth management division of Schroders. Janet is responsible for the formulation and communication of Cazenove’s top-down views. She is a member of the investment committee that oversees strategic and tactical asset allocation at Cazenove. Janet is also the macro spokesperson and a regular commentator at major media outlets including the BBC, Bloomberg and CNBC.
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