Consumer inflation in the U.S. in focus amid uncertainty over interest rates

This week, all eyes are on consumer inflation data in the United States, following a surprisingly strong payroll employment report that indicated a hot labor market. Even though the Federal Reserve (Fed) prioritizes different indicators, market analysts are closely monitoring inflation perceptions and how they might influence a potential interest rate cut. Currently, interest rates are in contractionary territory, meaning they are intended to slow down economic growth.

Consensus forecasts predict a monthly increase of 0.3% in March for both the headline CPI (including volatile items) and the core CPI (excluding volatile items like energy). In February, both indices rose by 0.4%. ING aligns with the consensus but cautions that the data "still around double the 0.17% MoM rate that would, over 12 months, bring the YoY rate down to the 2% target.”

According to a recent ING report, inflation has been "running consistently hot in recent months, with housing components remaining particularly sticky while sharply higher insurance costs and portfolio management fees have been contributing to elevated supercore readings." BTG Pactual bank believes the CPI "should continue to suggest improvement compared to the unexpectedly high reading in January, which is increasingly seen as an outlier."

Bank of America (BofA) expects energy prices to rise slightly faster than seasonal trends and predicts that "rising crude prices could continue to push energy prices higher over coming months."

Economists worldwide are eagerly awaiting US inflation data for further clues about the future direction of American monetary policy. "This is primarily due to the pronouncements of FOMC members following committee meetings, as well as in speeches and interviews. During these events, they reiterate the need for more data to confirm inflation's behavior before initiating a cycle of interest rate cuts," explains André Carvalho, portfolio director at Acura Capital.

Carvalho adds that if the data doesn't show a path towards convergence with the target, "it would reinforce the notion that there's no immediate need for interest rate cuts, and market expectations for the start of the downward trend would be pushed back to the second half of the year."

Thomas Monteiro, chief strategist at, suggests that the recent surge in several commodities makes the data release even more critical for the market, as it raises the possibility of increased external pressure on the Fed to maintain high interest rates for a longer period.

"Given the rise in food and gasoline prices during this period, the most likely scenario is that the CPI will come in slightly above expectations year-over-year, widening the gap with the core CPI and to an even greater extent with the core PCE released two weeks ago," points out Monteiro.

Monteiro further observes that it's no coincidence that US government bond yields are already signaling challenges and moving in a direction that contradicts the narrative of rate cuts in the first half of the year. "However, from the Fed's perspective, a surprise in the CPI is not expected to prompt an immediate change of course," he concludes.

Andrea Damico, chief economist at Armor Capital, highlights that services experienced a rebound in January, followed by a deceleration in February. She anticipates this deceleration to likely continue modestly or, at the very least, for service price levels to stabilize at levels more consistent with disinflation (a gradual decrease in inflation).

The situation for goods is different and somewhat troubling, according to Damico. "We'll probably see renewed pressure on the goods side in the March data," she predicts. "I believe recent sharp increases in freight costs and oil prices, which are more responsive to geopolitical issues, are partly to blame." Damico expects this uptick to be temporary, but acknowledges that it raises concerns about the timing of the interest rate cut cycle.

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