**As seen in Risk In The Week report 05/10/24, subscribe at cablefxm.co.uk/reports
March headline prices rose to 3.5% Y/y from the prior 3.2%, above the consensus median of 3.4%, headline CPI topped economists' expectations every month of 1Q. For the first time in more than a year, core CPI rose faster than the prior, the metric ticked at 3.8% while super core inflation jumped to the highest since April 2023 at 4.8%. Evidence of a lack of disinflationary progress is clear, as the super core figure has accelerated faster since November. Also, the March CPI report showed a positive contribution from energy prices for the first time since February 2023, and we have previously noted the rise in commodities as a potential driver of faster headline inflation. Core services continue to drive inflation, the contribution to the headline is now at the highest since September, and this is the heaviest weight in the BLS consumer price index.
As a reminder, U.S. Treasuries had their worst month of the year in April, partly reflecting a Fed policy reaction to 1Q price data, the U.S. 10-year yield is holding near 4.50% heading into the CPI report. Analysts at Deutsche Bank noted growing evidence of sticky inflation and questioned whether the Fed would be able to cut rates at all this year, some FOMC voting members have expressed this view recently. Meanwhile, crude oil prices supported by geopolitical risks and recording a 4th consecutive monthly gain are not helping the disinflation narrative. Economists at Commerzbank said U.S. prices are likely to remain above average as they point to a sharp rise in wage costs, they pencil the headline at 0.4% M/m as April gasoline prices were higher than in March. Commerzbank's view is that the Fed will hold rates and deliver one 25bps rate cut in December, further in the calendar, the desk sees the Fed lowering rates to 4.75% before pausing as inflation is likely to be a long-lasting problem.
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