Stubbornly high US inflation grew stronger than expected in March

(CNN) — Surging gas prices and sky-high mortgages and rent sent inflation rising more than expected in March, adding to Americans’ prolonged and painful battle with high costs. That could force the Federal Reserve to keep its punishing rates higher for longer.

Posted 12:33 p.m. Apr 10 — Updated 2:16 p.m. Apr 10

Alicia Wallace

, CNN

CNN — (CNN) — Surging gas prices and sky-high mortgages and rent sent inflation rising more than expected in March, adding to Americans’ prolonged and painful battle with high costs. That could force the Federal Reserve to keep its punishing rates higher for longer.

US consumer prices picked up again last month, vaulting to a 3.5% increase for the 12 months ended in March, according to the latest Consumer Price Index data released Wednesday by the Bureau of Labor Statistics.

That’s up considerably from February’s 3.2% rate and marks the highest annual gain in the past six months. Friday’s report further highlights that the path to lower inflation remains extremely bumpy — and continue to be a drag on Americans’ hard-earned finances — and that any loosening of monetary policy might not happen soon.

“You can kiss a June interest rate cut goodbye,” Greg McBride, chief financial analyst for Bankrate, wrote in commentary issued Wednesday. Following the report’s release, the markets’ probability of a June rate cut sank to 21%, down from 53% on Tuesday and 73% last month, according to the CME FedWatch tool.

US stocks tanked Wednesday after the release of the hotter-than-expected inflation data, with the blue-chip Dow falling by more than 500 points. The S&P 500 lost 1% and the Nasdaq Composite fell by 1%.

On a monthly basis, prices were unchanged from February’s 0.4% gain.

Gas and shelter costs contributed more than half of that monthly increase, but price increases were broad-based, according to the BLS. Aside from prices falling in only a couple of categories — used and new cars as well as fuel oil — or remaining flat (grocery store food), prices rose in pretty much every major category last month.

Economists were expecting a 0.3% monthly increase and an annual rate of 3.4%, according to FactSet consensus estimates.

A stubborn ‘core’

The Fed has been wanting to see meaningful progress on inflation before it starts cutting rates.

The pace of price hikes slowed markedly in 2023, but that progress not only hit a roadblock to start this year, it moved into reverse.

Since the headline index can be heavily influenced by highly volatile categories such as food and energy, central bankers often look closely to the “core” index that strips out those categories.

However, core CPI did not slow as expected.

Excluding gas and food prices, categories that tend to be more volatile, core inflation rose 0.4% from the month before, bringing the annual rate to 3.8%, the same as February’s reading. Economists had anticipated a 0.3% monthly gain and for the annual rate to inch lower to 3.7%, according to FactSet.

“The headline number was expected to go up because of energy prices, but the fact that core came in hotter than expected is a real bummer,” Tyler Schipper, assistant professor in economics and data analytics at the University of St. Thomas in Minnesota, told CNN. “That’s the number to fixate on in terms of underlying inflation trends, and they are very persistent and very stubborn.”

On a three-month annualized basis, core inflation is running at 4.5%, Sarah House, managing director and senior economist at Wells Fargo, told CNN.

“We’re still seeing very stubborn services inflation,” she said. “This is the element that the Fed has really focused on. They feel like they have a better grip on goods prices and what’s going to happen ahead, but we’re still not seeing the improvement they need in the services sector if we’re going to continue to drive inflation significantly lower this year.”

Car insurance spikes, other services climb

The housing component of inflation has proved frustrating for economists and other observers because even while the government’s evaluation of shelter costs — which have a time lag — remains high, private sources of more recent data have shown rent cooling over the past year.

On an annual basis, the shelter index in the March CPI didn’t budge from the 5.7% rate seen a month before.

“Shelter was a touch firmer, and I think that does continue to raise some doubt over how quickly and how far shelter inflation can cool ahead,” House said.

It’s not just shelter keeping services inflation stuck in the mud. The services excluding shelter index continued to outpace overall inflation, rising 0.5% for the month and 5.3% for the year, according to the report.

Medical care services, which saw prices fall slightly in February, bounced higher by 0.6% last month; and car insurance shot up by 2.6%, bringing the annual price hike to a distasteful 22.2%.

This story is developing and will be updated.

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