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Apr 10 - 09:55 AM

CIBC: Reaction to March's US CPI Report - Fed's Rate Cut Delays

By eFXdata  —  Apr 10 - 08:59 AM

Synopsis:

CIBC's analysis of the US CPI report for March, which again surpassed consensus forecasts, indicates heightened inflationary pressures, thus suggesting that the Federal Reserve is unlikely to initiate rate cuts in the near future. The persistence of core and headline inflation at levels above expectations highlights ongoing price pressures, particularly in the services sector, suggesting a primary focus for the Fed on mitigating inflation risks rather than immediate rate reductions.

Key Points:

  • Persistently High Inflation: Core CPI rose by 0.4% month-on-month, maintaining its previous rate and exceeding consensus predictions. Similarly, headline inflation increased to 0.4%, pushing the year-over-year figure to 3.5%.
  • Services Sector Driving Inflation: Prices in the services sector remained significantly high, contributing to sustained core inflation levels, despite a reduction in core goods prices.
  • Fed's Prioritization of Inflation Control: Given the recent data, the Fed's main concern shifts back to controlling underlying inflationary pressures, despite inflation being slightly above the target, signaling a delay in anticipated rate cuts.
  • Considerations for Future Policy: The underlying causes of the inflation spike early in 2024, whether due to residual seasonality or robust demand, pose crucial considerations for the Fed's upcoming policy decisions.

Conclusion:

The March CPI report underscores the complexity of the current inflation landscape in the US, with sustained price pressures in the services sector suggesting robust demand and consumer spending. As such, the Federal Reserve is expected to maintain its current rates until a clearer picture of the inflation trajectory emerges. CIBC posits that this continued focus on inflation management over immediate rate reductions underscores the challenges facing the Fed in navigating policy in a persistently inflationary environment.

Source:
CIBC Research/Market Commentary

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