8 months ago • 2 mins
What’s Going On Here?
Data out on Wednesday showed America looking red, white, and cool, with prices chilling out a little last month.
What Does It Mean?
As the Federal Reserve (the Fed) nears the end of its most aggressive rate-hiking campaign since the 1980s, it’ll be glad that March's inflation report has gone and given it a little thumbs up. US prices for goods and services inched up by just 5% compared to last year, slowing down from February's 6% and marking the smallest climb in nearly two years. Energy and used car prices took a dip, and food prices stayed flat on a monthly basis – but services like transportation and shelter did keep marching ahead. Interestingly that meant core inflation (which leaves out volatile factors like energy and food) hit 5.6%, outpacing the overall measure for the first time in over two years.
Why Should I Care?
For markets: Hikewatching.
Sure, the data isn't perfect, but there’s a hint that price increases are softening like the Fed's been wishing they would. And while a 0.25 percentage point hike still seems to be on the cards for May, this data could reduce the chances of more economy-squeezing hikes when June rolls around. That could explain why US stock markets perked up after the news. Still, Europe and the UK are poised to keep hiking, which could lure investors to their currencies and, according to UBS, darken the US dollar’s shine from here on out.
The bigger picture: Patience is a virtue.
Inflation might be easing up, but it's still a long way from the cozy 2% target that most Western central banks have in their sights. And that’s where things get dicey: sticky inflation might keep interest rates higher for longer, unveiling hidden vulnerabilities in the global economy. After all, the IMF warned that could dramatically boost the odds of a dreaded "hard landing" just this week.
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