CPI report shows inflation at 5% – green light for market recovery?

Key Takeaways:

• CPI data comes back with a 0.1% rise month-over-month.
• Will Fed adopt a more dovish approach?
• If the lawmakers lay off the interest rate hikes, markets could recover.

YEREVAN (CoinChapter.com) – The US inflation has shrunk to 5.0% in March, standing 0.1% above February numbers, according to the latest Consumer Price index (CPI) report from the Bureau of Labor Statistics.

The data came after the Federal Reserve somewhat eased its hawkish approach and planned to hike up interest rates by 25 bps. Here’s a short rerun of the report and its possible implications for the market.

Shelter Costs Lead US Inflation Again

The report specified that the index for shelter was “by far the largest contributor” to the monthly all-items increase, much like in February. While the food index was virtually unchanged since February, gasoline and natural gas indexes contributed to the cool-off. 

The energy index fell 3.5% in March after decreasing 0.6% in Feb. The gasoline index decreased by 4.6%, following a 1.0% increase in the previous month. The natural gas index decreased 7.1% over the month, following an 8% decline in February. The electricity index decreased 0.7% – largest decline since 2021.

read the report.

The data showed that while inflation is still well above where the Fed feels comfortable, it is at least showing continuing signs of decelerating. Policymakers target inflation around 2% as a healthy and sustainable growth level. Still, the headline annual increase for the CPI was the smallest since June 2021.

Also read: Equity Shorts Hit 10-Year High Amid Recessionary Pressures — Dollar Eyes Recovery.

What are the implications of inflation slowly declining?

Meanwhile, the cool-off could mean a more dovish approach from the policymakers, as the Fed could possibly slam the breaks on the ongoing interest rate hike series. In that case, the markets would likely rebound. Jeffrey Roach, the chief U.S. economist at LPL Financial, agreed with the possibility of market recovery.

As the economy slows, consumer prices will decelerate further and should bring inflation closer to the Fed’s long-run target of 2%. Markets will likely react favorably to this report as investors gain more confidence that the next Fed meeting may be the last meeting when the Committee raises the Fed funds target rate.

said the expert.

However, market recovery is far from certain, as equities face the highest rate of shorting in a decade. Additionally, the labor report on April 14 could provide more information about the market stability.

In detail, the Fed is hoping it can calibrate policy so that the slowdown it is trying to engineer in the labor market doesn’t tip the economy into recession. Gross domestic product growth is tracking at a 2.2% annualized pace for the first quarter, according to Atlanta Fed data, though many economists expect a contraction to come later in the year.

Also read: US Bank Outflows Hit $1T Ahead of Fed’s Rate Hike Decision.