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Macro Flash Report

INFLATION DATA – MARCH CPI RELEASE

Takeaway:

Once, twice, three times. At this point it is undeniable that the clear disinflationary pressure from last year is subsiding with 3 hot prints to start 2024. Throughout the rate hike cycle, many pointed to the last leg of downward pressure being the most difficult and this year’s data has supported that.

CPI Topline (dashed), Core (solid), Supercore (dotted)

CPI YoY rose to 3.5% from February’s 3.2% and surpassed the forecast estimates of a 3.4% increase. At the same time, March’s CPI (Ex Food & Energy) YoY held steady at 3.8%, which was also above market expectations of 3.7%.

  • Notable increases over the year were the shelter index (+5.7%), motor vehicle insurance (+22.2%), personal care (+4.2%), medical care (+2.2%), and recreation (+1.8%).
  • Another important signal to watch is Supercore CPI YoY which rose to 4.8%, it’s highest level since April 2024. In the run up of interest rates, Chair Powell specifically pointed to CPI Services (ex. Shelter) as a key indicator for where price pressure was trending.

Turning to the consumer, forward expectations remain in line with a disinflationary bias. The March NY Fed 1-Yr Inflation Expectations, held steady at 3.0% and the University of Michigan 1-Yr Inflation Expectations dipped from 3% to 2.9%. The key risk here is that the longer inflation is sticky, the more likely we will see a surge in wages demanded. Real average weekly earnings YoY have been positive for 10 months, but today’s print of 0.6% is the lowest level since this index flipped.

The market had a stark reaction and finally gave up on pricing in the first interest rate cut at the June FOMC meeting (now pricing September), while the 2yr Treasury Yield jumped by nearly 25bps following the surprise print higher.

**For weeks, our published view has been that inflation would remain stickier than the market expected, and that July would be the earliest meeting for a cut. We will continue to monitor the data, but still expect the first cut to take place in July.