US consumer prices surge, likely to postpone Fed rate cut

US retail inflation: US consumer prices surged beyond expectations in March, driven by higher gasoline and rental housing costs, signalling a probable delay in the Federal Reserve's plan to cut interest rates until September.

The Labour Department's Bureau of Labour Statistics reported a third consecutive month of robust consumer price growth on Wednesday, following last week's announcement of accelerated job growth in March and a drop in the unemployment rate to 3.8 per cent.

Fed Chair Jerome Powell's stance on delaying interest rate cuts has been reiterated amid persistent inflationary pressures, shaping the monetary policy outlook.

Phillip Neuhart, director of market and economic research at First Citizens, remarked, "The data doesn't rule out Fed action this year entirely, but it significantly reduces the likelihood of an overnight rate cut in the coming months."

Last month, the consumer price index (CPI) surged by 0.4 per cent, mirroring February's increase, with gasoline prices rising by 1.7 per cent and shelter costs by 0.4 per cent.

Gasoline and shelter expenses accounted for a substantial portion of the CPI rise, while food prices increased modestly by 0.1 per cent, despite stable grocery food inflation.

The year-on-year CPI hike of 3.5 per cent in March marked the highest level since September, reflecting a persistent upward trend. Economists had anticipated a monthly CPI gain of 0.3 per cent and a year-on-year rise of 3.4 per cent.

Following the data release, financial markets adjusted their expectations, projecting the first rate cut to occur in September instead of June. Investors now anticipate two rate cuts, compared to the three envisaged by Fed officials last month.

The Federal Reserve has maintained its policy rate within the 5.25 per cent-5.50 per cent range since July, with a cumulative increase of 525 basis points since March 2022.

Excluding volatile food and energy components, the core CPI increased by 0.4 per cent in March, propelled by rising rents and other essential services. In the 12-month period ending March, the core CPI rose by 3.8 per cent, aligning with February's increase.

(With Reuters inputs)