US inflation exceeds expectations reaching 3.5 percent on annual basis

In the United States, the Consumer Price Index (CPI) rose by 0.4 percent on a monthly basis and by 3.5 percent on an annual basis in March, surpassing market expectations. Following the surprise data, markets reacted with gold prices experiencing rapid declines and the dollar strengthening.

The increase in annual inflation in March and the persistent strength of core price pressures have raised questions about how much the Federal Reserve (Fed) can cut interest rates this year.

The Labor Department announced that the Consumer Price Index, a measure of prices of goods and services across the economy, had risen by 3.5 percent in March compared to the previous year, exceeding the 3.2 percent rate in February.

Core inflation also exceeded expectations

Excluding volatile food and energy categories, core prices rose by 3.8 percent compared to the previous year. The increase in core prices over a monthly period was 0.4 percent, exceeding economists’ expectations of a 0.3 percent increase.

Economists were focused on this data

Investors and economists were eagerly awaiting Wednesday’s announcement with an unusually high level of interest, even by the standards of the monthly economic calendar, which always holds an important place for CPI reports.

The latest data, showing that inflation has run higher than expected in January and February, marked an unpleasant break from months of encouraging reports showing a significant slowdown in the pace of price increases.

How did the markets react?

Following the data release, yields on US government bonds rose, reflecting bets that the data could delay or reduce future interest rate cuts.

The dollar index rose to 104.85, reaching its intraday peak

Following the release of the important data, gold prices experienced rapid declines. The yellow metal fell to $2322 and traded at $2326 per ounce as of 16:15, recording a 1.17 percent loss.