US consumer prices came in hotter than expected in March, according to the latest data from the Bureau of Labor Statistics released Wednesday morning.
The Consumer Price Index (CPI) rose 0.4% over the previous month and 3.5% over the prior year in March, an acceleration from February's 3.2% annual gain in prices. The data matched February's month-over-month increase.
Both measures came in ahead of economist forecasts of a 0.3% monthly increase and a 3.4% annual increase, according to data from Bloomberg.
The hot print complicates the Federal Reserve's next move on interest rates as the central bank works to bring inflation back down to its 2% target. Fed officials have categorized the path down to 2% as "bumpy."
Investors now anticipate two 25 basis point cuts this year, down from the six cuts expected at the start of the year, according to updated Bloomberg data.
Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards
On a "core" basis, which strips out the more volatile costs of food and gas, prices in March climbed 0.4% over the prior month and 3.8% over last year — matching February's data. Both measures were higher than economist expectations of a 0.3% monthly increase and a 3.7% annual gain.
Markets sank following the data's release, with the 10-year Treasury yield (^TNX) jumping more than 14 basis points to touch above 4.5% for the first time in 2024.
"Today’s crucial CPI print has likely sealed the fate for the June FOMC meeting with a cut now very unlikely," Seema Shah, chief global strategist at Principal Asset Management, said in reaction to the print. "This marks the third consecutive strong reading and means that the stalled disinflationary narrative can no longer be called a blip."
"In fact, even if inflation were to cool next month to a more comfortable reading, there is likely sufficient caution within the Fed now to mean that a July cut may also be a stretch, by which point the US election will begin to intrude with Fed decision making," Shah added.
Ryan Sweet, chief US economist at Oxford Economics, agreed, adding the hotter data may push more policymakers "into the two-rate cut camp."
"The Fed has a bias toward cutting interest rates this year, but the strength of the labor market and recent gains in inflation are giving the central bank the wiggle room to be patient," Sweet said. "If the Fed does not cut interest rates in June, then the window could be closed until September because there is little data released between the June and July meetings that could alter the Fed’s calculus."
"The odds are rising that the Fed cuts rates less than 75 basis points this year," he predicted.
But Greg Daco, chief economist at EY, cautioned investors to be patient: "I think we have to be very careful with this idea that it’s a play-by-play process."
In an interview with Yahoo Finance, he noted that "these types of readings do still point to disinflationary pressures. It’s still moving in the right direction, and it will take time."
Following the data's release, markets were pricing in an 80% chance the Federal Reserve holds rates steady at its June meeting, according to data from the CME FedWatch Tool. That's up from a roughly 40% chance the day prior.
Investors are also putting the probability that the central bank won't cut rates in July at higher than 50%, with markets now largely anticipating the first cut will come in September.
Shelter, gas prices remain sticky
Notable call-outs from the inflation print include the shelter index, which rose 5.7% on an unadjusted, annual basis and 0.4% month over month, matching February. The shelter index accounted for over 60% of the total 12-month increase in core prices.
Sticky shelter inflation is largely to blame for higher core inflation readings, according to economists.
The index for rent and owners' equivalent rent (OER) each rose 0.4% on a monthly basis. Owners' equivalent rent is the hypothetical rent a homeowner would pay for the same property. In February, the index for rent rose 0.5% while OER increased 0.4%.
Energy prices — largely to blame for the increase in headline inflation — continued to rise in March, buoyed by higher gas prices. The index jumped another 1.1% last month after rising 2.3% in February. On a yearly basis, the index climbed 2.1%.
Gas prices increased 1.7% from February to March after rising 3.8% the previous month.
The BLS noted the motor vehicle insurance index rose 2.6% in March, following a 0.9% increase in February. The index for apparel increased 0.7% over the month. Other indexes that rose in March included personal care, education, and household furnishings and operations.
The food index increased 2.2% in March over the last year, with food prices rising 0.1% from February to March. The index for food at home held steady over the month.
However, food away from home ticked up 0.3% month over month after rising 0.1% in February.
Read the latest news on inflation and what it means for the Federal Reserve:
Higher gas prices helped drive hotter-than-expected inflation in March
Another hot inflation reading fans fears Fed will push back rate cuts
Why auto insurance costs are rising at the fastest rate in 47 years
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at [email protected].
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