- Annual inflation rate rose to 3.5 percent in March, new data shows
- Prices rose due to the cost of housing and vehicle insurance.
- The Dow Jones plummeted 500 points within minutes of the news
Inflation rose to 3.5 percent in March as prices were pushed up by the high cost of housing and gas.
The data, released by the Labor Department, was stronger than expected, causing stocks to fall amid fears it could delay the Federal Reserve’s timeline for cutting interest rates, which are already on its highest level in 22 years.
The Dow Jones was at 38,961 when the data was released at 8:30 a.m. ET, and sank within seconds to 38,619 and was at 38,470 at 8:36 a.m.
Experts said the figures have effectively ruled out a summer interest rate cut.
Monthly, the Consumer Price Index (CPI) increased 0.4 percent, according to figures published by the United States Department of Labor. Gasoline and housing costs, which include rent, accounted for more than half of the increase.
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Inflation rose to 3.5 percent in March, above analysts’ expectations
Principal Asset Management’s Seema Shah told Bloomberg that the unexpected rise in inflation “sealed fate” for the June Federal Reserve meeting with a now “very unlikely” cut.
She said: “Indeed, even if inflation were to cool next month to a more comfortable reading, there is likely to be enough caution within the Federal Reserve now to mean that a July cut may also be overdone, at which point elections will begin in the US.” strongly interfere in the decision making of the Federal Reserve.
The Federal Reserve’s benchmark funds rate currently sits between 5.25 and 5.5 percent.
In theory, higher rates are aimed at curbing inflation by controlling consumer spending.
Investors had previously forecast around four rate cuts this year. However, the Federal Reserve chose to keep rates at their current level during its last meeting in March.
The US central bank has an inflation target of 2 percent.
Economists polled by Reuters had forecast the CPI would gain 0.3% month-on-month and 3.4% year-on-year.
Although the annual increase in consumer prices has slowed from a peak of 9.1% in June 2022, the disinflationary trend has slowed in recent months.
Federal Reserve Chairman Jerome Powell has repeatedly said that the US central bank is in no rush to start reducing borrowing costs.