Inflation Rises More Than Expected To 3.5% In March, Derails June Rate Cut Hopes (UPDATED)

Editor’s note: This story has been updated with additional details.

Inflation in the United States surged again in March, surpassing economist expectations and disappointing investors who were anticipating imminent cuts in Federal Reserve interest rates.

The annual inflation rate calculated on the Consumer Price Index (CPI) rose to 3.5% last month, according to Wednesday’s data from the Bureau of Labor Statistics.

March Inflation Report: Key Figures

The annual CPI inflation rate surged from 3.2% in February to 3.5% in March 2024, marking the second consecutive month of increase and exceeding expectations of a 3.4% surge.
On a monthly basis, the CPI advanced at a pace of 0.4%, maintaining the momentum from the previous month and surpassing forecasts of 0.3%.
The index for gasoline spiked by 1.7% on a monthly basis. On an annual basis, gasoline costs were 1.3% higher, sharply rising from the 3.9% drop in February.
Excluding food and energy costs, the core CPI inflation rate came in at 3.7% year-on-year, slightly easing from the 3.8% rate in February, in line with expectations.
On a monthly basis, core CPI advanced at a pace of 0.4%, matching the 0.4% seen in February, but above estimates of 0.3%.
The shelter index rose by 0.4%, contributing significantly to the overall monthly increase in the index for all items excluding food and energy.

CPI Indicator	February 2024	March 2024	Expectations
Headline Inflation Rate (Y/Y)	3.2%	3.5%	3.4%
Headline Inflation Rate (M/M)	0.4%	0.4%	0.3%
Core Inflation Rate (Y/Y)	3.8%	3.8%	3.7%
Core Inflation Rate (M/M)	0.4%	0.4%	0.3%

Market Reactions

Ahead of the inflation report, investors had priced in a 54% likelihood of a Federal Reserve interest rate cut in June.

The hotter-than-expected March inflation report may dampen these expectations further as policymakers are likely to lean toward keeping high interest rates for longer to counteract the renewed inflationary pressures.

Minutes after the release, Treasury yields spiked, with the two-year Treasury note yield surging by 17 basis points to 4.9%, on track to close at its highest level since late November 2023.

Chart: US 2-Year Yields Sharply Rise After Hot CPI Report

The U.S. dollar index (DXY), as tracked by the Invesco DB USD Index Bullish Fund ETF UUP, strengthened 0.5%, backed by rising expectations of a delay in interest rate cuts.

Gold, as monitored through the SPDR Gold Trust GLD, fell 0.3%

Futures on major U.S. indices traded lower during the premarket trading Wednesday, with tech underperforming the broader market. The Nasdaq 100 was 1.4% lower at 8:54 a.m. in New York.