Inflation, the new normal!
The March CPI data once again came in a bit too hot for comfort. Both headline and core CPI rose 0.4%, and although the latter increase was a "low" 0.4% gain (0.36% unrounded), the three-month annualized rate of core CPI inflation climbed to 4.5%, the fastest pace since May 2023.
Just for context, CPI was up 11.4% in the 24 months preceding the start of the Fed's tightening cycle in March 2022. CPI is now up 8.6% in the 24 months since the start of the Fed's tightening cycle in March 2022.
Jumps in gasoline (+1.7%) and electricity (0.9%) prices helped push the headline CPI higher, while a benign 0.1% increase in food prices restrained consumer inflation during the month.
For the sixth month in a row, the short-term dynamics of the "super core " (Core services less shelter ) is worrying- The acceleration of super core was transportation services-related. The increase seen in car insurance during March was 6.7 times the historical average m/m increase.
Even if the inflation data cool gradually in the months ahead as we expect, a solid labour market and tranquil financial conditions besides this Fiscal profligacy won't let FOMC cut rates.
So Fed is not done fighting inflation and rates will stay higher for longer. We are sticking to our view that the Fed will not cut rates in 2024
The Treasury response was rather immediate and brutal with the 2 yr yield up 18 bps to 4.92% and the 10 yr yield is kissing 4.50% vs 4.35% right before the release.