The US Bureau of Labor Statistics reported on Wednesday that annual inflation in the US, as measured by the Consumer Price Index (CPI), fell to 5% in March from 6% in February. This reading was lower than the market expectation of 5.2% and the lowest since May 2021.
The annual Core CPI, which excludes volatile food and energy prices, increased by 0.4% month on month to 5.6%, as expected.
“By far the largest contributor to the monthly all-items increase was the index for shelter.” This more than offset a 3.5 percent drop in the energy index over the month, as all major energy component indexes fell. In March, the food index remained unchanged at “The food at home index fell 0.3 percent,” according to the BLS.
Annual CPI of US reaction on the market
With the initial reaction to the soft inflation report, The US Dollar came under heavy selling pressure. The US Dollar Index was down 0.55% on the day at 101.60.
Meanwhile, following the CPI readings, the benchmark 10-year US Treasury bond yield fell below 3.4% and fell nearly 2%. The probability of another 25-basis point Federal Reserve (Fed) rate hike is now 63%, down from 73% on Tuesday, according to the CME Group’s Fed Watch Tool.
Mid-week inflation data appear to be boosting risk sentiment. US stock index futures are up between 0.7% and 1% ahead of the opening bell on Wall Street.
Observing the market reaction US March CPI, as it rose at an annualized rate of 5%, better than the 5.2% expected.”
“The core annual reading was 5.6% higher than expected. Finally, inflation increased by 0.1% month on month, less than the 0.3% expected “Bednarik continued. ”
The US dollar fell, and the EURUSD soared to 1.0989, its highest level since early February, as the news indicates that the Federal Reserve will not act (Fed). Stock markets are surging, while government bond yields, particularly at the shorter end of the yield curve, are falling sharply.”
