DThe American consumer price index (CPI) rose more than expected in March. It rose by 0.4 percent, just as strong as in February. Market observers had expected an increase of 0.3 percent. Over the past twelve months, the index rose by 3.5 percent. In February the increase was 3.2 percent.
Official statistics even recorded an increase of 3.8 percent for the index adjusted for the volatile prices for food and energy. That's almost twice the Federal Reserve's inflation target. However, the American Federal Reserve bases its monetary policy more closely on the price index of private consumer spending (PCE), which is usually slightly lower than the CPI. The PCE was recently at 2.8 percent.
The inflation figures were awaited with great excitement because they were expected to provide information on two questions: Is inflation more persistent than the central bankers at the Federal Reserve themselves had expected? The signs are now increasing after inflation did not fall any further in the first quarter of this year.
Are the planned key interest rate cuts in danger?
And does this mean that the central bankers' consensus forecast of three key interest rate cuts this year needs to be revised downwards? The key interest rates are currently in the range between 5.25 percent and 5.5 percent. They have been stagnating at this level since July last year. Inflation had fallen significantly but had proven stubborn in the first two months of this year, confirming the Federal Reserve's wait-and-see monetary policy. Its boss, Jerome Powell, had made it publicly clear several times that he fundamentally expected inflation to ease, but that he lacked the ultimate certainty that would justify a reduction in key interest rates.
Stock futures fell significantly in an initial market reaction to the fresh economic data. JP MorganChase CEO Jamie Dimon, who warned against excessive optimism in his influential letter to shareholders, can see this confirmed. The economy was primarily boosted by high government spending and financed by budget deficits. These could contribute to inflation proving more stubborn and interest rates higher than many market participants expected.
American economy actually in good shape
The American economy has recently been in exceptionally robust shape. The latest labor market report last Friday surprised most analysts with above-average employment gains of more than 300,000 additional jobs, an unemployment rate of 3.8 percent and wage increases of 4.1 percent. The good labor market data had already fueled fears that the American economy could run hotter than central bankers had calculated, thereby darkening the prospects of a first cut in key interest rates in June. Accordingly, share prices had fallen across the board. However, some economists point out that immigrants in particular have filled the gaps, alleviating inflationary pressures that could come from a hot labor market.
However, the economic signals are not entirely clear: a survey of bosses of small companies shows that their confidence is dwindling. Their sentiment about economic development was at its worst in 11 years, the National Federation of Independent Business reported. Inflation has once again been cited as the biggest economic problem, the organization said. One in four companies complained about this. The second most important problem was the quality of the workers.
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