U.S. Consumer Price Index (March 2024)

Core inflation comes in on the hotter side for a third consecutive month

• The Consumer Price Index (CPI) rose 0.4% month-on-month (m/m) in March, in line with the consensus forecast. On a twelve-month basis, CPI inched higher to 3.5% (from 3.2% in February).   
  • Energy prices were driven higher by further gains in gasoline prices (+1.7% m/m) and electricity costs (+0.9% m/m). Food prices ticked up 0.1% m/m and are up 2.2% from year-ago levels.
• Excluding food & energy, core prices rose 0.4% m/m – ahead of the consensus forecast calling for a more modest gain of 0.3% m/m. Relative to March 2023, prices were up 3.8% – unchanged from the month prior. 
• Core service prices were the main factor behind a hot core reading. Core services prices rose 0.5% m/m and are up an elevated 5.4% year-over-year. Shelter costs were again the biggest contributor to last month's rise in core inflation, with both owners' equivalent rent (+0.4% m/m) and rent of primary residence (+0.4% m/m) notching solid gains. But non-housing services were even stronger, rising 0.6% m/m – an acceleration from last month's 0.45% gain – pushing the twelve-month change up to a 10-month high of 4.6%. 
• After recording a modest gain in February, core goods prices turned lower in March – falling 0.2% m/m. Prices for goods have been either flat or have declined in 9 of the past 10 months. 

Key Implications

• That is now three inflation reports that have come in on the 'hotter' side. At this point, the 'bump in the road' that Fed officials have been alluding to is starting to look more like a hill. Perhaps the only encouraging element of this morning's report was the fact that goods prices slipped back into deflationary territory. Beyond that, there were virtually no signs of 'further progress'. The three-month annualized change on core inflation ticked up to 4.5% (from 4.2%), while both the six-month annualized and twelve-month change held steady at 3.8% and 3.9%, respectively. 
• Following this morning's release, Treasury yields have shot higher and equity futures have sold-off. Pricing for a June cut has slipped to just 22%, and for good reason. Between now and the June FOMC meeting, Fed officials will only see two more inflation reports. Given the acceleration in inflation over the past three months, these reports are unlikely to be enough to instill greater confidence that inflation remains on a sustainable path back to 2%. For this reason, we favor the Fed waiting until July to cut rates (see forecast). 

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