U.S. Consumer Prices Rise, but Inflation Still Tame

U.S. consumer prices were higher during the month of March as reported by the Labor Department, but the overall trend still points to tame inflation.

The consumer-price index rose 0.41 percent last month, which was highlighted by rising prices in energy and food. This pushed annual headline inflation up to 1.86 percent in March from the 1.50 percent seen in February.

“Overall we continue to see pretty tame inflation,” said Sarah House, economist at Wells Fargo. “It’s tough to see core inflation breaking meaningfully higher from here.”

The data comes after the Federal Reserve’s decision to keep interest rates unchanged last month. Federal Reserve Chairman Jerome Powell reiterated patience with respect to interest rate policy during last month’s press conference following the rate announcement and also mentioned that the U.S. economy is in a “good place.”

The rate move was widely anticipated by most market experts as the Fed elected to keep rates unchanged, holding its policy rate in a range between 2.25 percent and 2.5 percent. In addition, the central bank alluded to no more rate hikes for the rest of 2019 after initially forecasting two.

2019 has seen U.S. equities bounce back after a volatility-laden fourth quarter in 2018, but traders are dialing back their inflation bets, which sends a message of skepticism that continued growth through 2019 is sustainable.

A mix of data regarding manufacturing, business confidence and consumer data have tempered growth prospects, which has prevented inflation from going past the 2 percent target the Federal Reserve set. 2018 marks the seventh year inflation hasn’t gone past this target.

“The report will only encourage the Fed to stay parked on the sidelines, awaiting clearer direction on inflation and the economy,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.

Related: Goldman Sachs: Chance of a Recession is Now Just 10%

Additionally, over three-quarters of business economists are foreseeing a U.S. recession by the end of the year 2021, according to a semiannual National Association for Business Economics (NABE) survey. The survey results show that 10 percent expected a recession at the beginning of this year, while 42 percent are expecting one within a year. Another 25 percent expect to see an economic contraction by the beginning of 2021 while the rest have no opinion or see a recession happening after 2021.

The latest minutes revealed from the last Federal Reserve meeting show that the door isn’t completely shut on the idea of raising interest rates.

“Several participants noted that their views of the appropriate range for the federal funds rate could shift in either direction based on incoming data and other developments,” the meeting summary stated. “Some participants indicated that if the economy evolved as they currently expected, with economic growth above its longer-run trend rate, they would likely judge it appropriate to raise the target range for the federal funds rate modestly later this year.”

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