News & Resources

Market Analysis

Latest Insights
Press Releases
Latest Insights

Market Wire
US Inflation Beats Expectations, Sees Biggest Monthly Increase Since 2012

by Adam Corbett | April 13, 2021

The US Consumer Price Index (CPI) for March beat economists’ expectations of 0.5% to come in at 0.6% for the month, the highest monthly reading since August 2012, with the annualized reading indicating an increase of 2.6%.

Stripping away volatile food and energy prices, the core reading saw an increase of 0.3%, or 1.6% annually, when the street was expecting a 0.2% increase.

The high year-over-year levels in part reflect the fact inflation slumped sharply in March of last year as the pandemic spread rapidly around the world, shutting down key economies and suppressing consumer demand.

Not surprisingly, the data had a muted effect on markets across the board, and are taking a back seat to headlines about the US Food and Drug Administration halting Johnson and Johnson vaccine rollouts.

Driving prices notably higher in March were price increases at the gasoline pumps, which registered a 9.1% increase, and in food and accommodations. This was to be expected, as demand for energy increases in lockstep with factories and plants reopening, and restaurants were able to begin serving patrons indoors.

Grocery prices saw a notable 3.3% increase as all six subcategories contributed their fair share of the gains.

Components dragging down the index should come as no surprise. Notable contributors include the airfare and lodging away from home subsector, down 15.1% and 6.4%, respectively.

Traders place a heavy emphasis on increasing consumer prices as they reflect the direction of overall inflation. During normal times, the resurgence of inflation drives central banks to increase short term interest rates in an effort to cool a hot economy and keep inflation in check.

Recently though, a result of the COVID-19 pandemic, the leadership of the Federal Reserve have made no secret that overnight rates are likely to stay where they are for a considerable period, with the Chair Jerome Powell indicating he is comfortable having inflation above its normal 2% target for some time now that the US central bank is focusing on achieving an average of that level over a period of time.

While the inflation numbers are objectively high, markets have not repriced the Fed to hike rates sooner, and are expecting to remain elevated for a few months and then for inflation to come back down.

Should inflation sit above the Fed’s 2% target going into the third quarter, despite Powell’s earlier commitment, markets may force his hand into raising rates sooner.

In the meantime, dance while the music is still playing, but don’t veer too far from the open chair.

 

Adam Corbett
Business Development Manager, Canada & Currency Analyst
acorbett@cambridgefx.com

“Cambridge Global Payments” is a trade name, which in this document refers specifically to one or more of these legal entities: Cambridge Mercantile Corp., Cambridge Mercantile Corp. (U.S.A.), Cambridge Mercantile Corp. (Nevada), Cambridge Mercantile (Australia) Pty. Ltd.

Cambridge Global Payments (“Cambridge”) provides this document as general market information subject to: Cambridge’s copyright, and all contract terms in place, if any, between you and the Cambridge entity you have contracted with. This document is based on sources Cambridge considers reliable, but without independent verification. Cambridge makes no guarantee of its accuracy or completeness. Cambridge is not responsible for any errors in or related to the document, or for damages arising out of any person’s reliance upon this information. All charts or graphs are from publicly available sources or proprietary data. The information in this document is subject to sudden change without notice.

Cambridge may sell to you and/or buy from you foreign exchange instruments (including spot and/or derivative transactions; both kinds are here called “FXI”s) covered by Cambridge on a principal basis.

This document is NOT: 1) Advice of any kind, or 2) Approved or reviewed by any regulatory authority, or 3) An offer to sell or a solicitation of an offer to buy any FXIs, or to participate in any trading strategy.

Before acting on this document, you must consider the appropriateness of the information, based on your objectives, needs and finances. For advice, you must contact someone independent of Cambridge.

Certain FXIs mentioned in this document may be ineligible for sale in some locations, and/or unsuitable for you. Contact your Cambridge representative for further information regarding product availability/suitability before you enter into any FXI contract.

FXIs are volatile and may cause losses. Past performance of a FXI product cannot be relied on to determine future performance.

This document is intended only for persons in Canada, the US, and Australia. This document is not intended for persons in the UK or elsewhere in the EEA. In Australia, this publication has been distributed by Cambridge Mercantile (Australia) Pty. Ltd. (ABN 85 126 642 448, AFSL 351278); for the general information of its customers (as defined in the Corporations Act 2001). This entity makes no representations that the products or services mentioned in this document are available to persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local law.

Fees may be earned by Cambridge (and its agents) in respect of any business transacted with Cambridge.

The document is intended to be distributed in its entirety. Unless governing law permits otherwise, you must contact the applicable Cambridge if you wish to use Cambridge services to enter a transaction involving any instrument mentioned in this document.

© Copyright 2018, Cambridge Mercantile Corp., ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of Cambridge Mercantile Corp. See www.cambridgefx.com for contact details.