US Inflation: Relief as Consumer Prices Dip Further From Dizzying Heights

Written by: Susannah Streeter | Hargreaves Lansdown

  • Headline US consumer prices increased 5% from a year earlier, down from 6% in February.
  • Prices rises are in sharp retreat from the  40-year high of 9.1% in June 2021.
  • Core prices, stripping out energy and food, remain sticky, rising from 5.5% to 5.6% on an annual basis.
  • Equities lift amid hopes this could signal the end of the Fed’s punishing rate hike cycle.

Inflation in the US appears to be on a faster path down from its dizzying heights, prompting relief on financial markets that the punishing cycle of rate hikes may soon be at an end.

US futures lifted sharply as headline CPI came in lower than expected, at 5% on an annual basis, compared to 6% in February, as energy prices retreated and food costs pulled back. But caution is still likely to creep in as it’s still not going to be a super-easy descent. Core prices, stripping out the more volatile energy and food costs, increased by 0.4% from February – pushing up the annual increase from 5.5% to 5.6%. Heat is not cooling off from all areas of the economy, with rents and used car prices hot spots last month, so it still seems highly likely there will be one more rate hike of 0.25% from the Fed next month. Nevertheless, the relief is palpable that inflation continues to head in the right direction, and expectations will rise that policymakers will put their fingers on the pause button in June.

The FTSE 100, Dax and CAC 40 in France all lifted on the news, amid hopes that monetary tightening will ease off more quickly, reducing the chance that the US, the world’s largest economy, will be pushed into recession. Brent crude also rose on the reading, pushing above $86 a barrel, on forecasts of higher demand for oil amid expectations of more clement economic conditions in the United States, and a knock-on effect, around the world.

Related: US CPI Data: It’s Time for the Fed to Pivot