Earlier today, the U.S. Bureau of Labor Statistics released its measure of retail inflation as calculated by the Consumer Price Index (CPI) for the month of March and to the surprise of many discovered that prices rose by 0.4%, above the consensus estimate of 0.3%. Furthermore, on a year-over-year basis, inflation has risen by 3.4%, up from 3.2% during February. This data calls into question the ease with which the Federal Reserve can get inflation down to its congressionally mandated target of two percent.Inflation remains stubbornly high in regard to shelter costs, which rose 0.4% for the fourth month in the last five and has increased 5.7% y/y. Moreover, shelter costs represents approximately 35% of the overall CPI so that getting this down is a must if the Fed wants to get inflation to two percent.
Within recent Snapshots which we publish weekly on Sunday mornings we repeatedly noted that the Fed’s efforts to get inflation back to two percent, one-half of its congressionally mandated objectives (the other being maximum employment), from its current level of around three percent, aka the ‘last mile’ may take more time and effort than the move to here from its highs during 2022 as some inflation data will most likely remain sticky. At this time, given the above as well as the approaching U.S. Presidential Election, we believe at the earliest any cut in interest rates would occur following the June meeting. Finally in regard to this matter, we believe the Fed may cut and wait rather than provide a series of cuts.
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