USA inflation in March hits Fed goal

An Unexpected Journey       A BOE rate increase in May has gone from outside bet to sure thing and back again              Source Bloomberg

An Unexpected Journey A BOE rate increase in May has gone from outside bet to sure thing and back again Source Bloomberg

This was the biggest increase since February 2017 following a 1.7-percent increase in February this year.

United States data on Monday showed that consumer prices accelerated in the year to March, with a measure of underlying inflation surging to near the Federal Reserve's 2 percent target as last year's weak readings dropped out of the calculation. "The so-called core PCE price index rose 0.2 month-on-month in March after a similar gain in February".

Fed officials will hold a regular meeting this week.

The uptick in inflation won't knock policy makers off their path of gradual increases in interest rates although it will eventually prompt them to pencil in four hikes for this year, instead of the three now forecast, said Peter Hooper, chief economist for Deutsche Bank Securities in NY.

Economists and Fed officials had anticipated the rise in the annual inflation measures reported by the Commerce Department on Monday, so it was not expected to alter the U.S. central bank's gradual pace of interest rate increases.

Last month´s increase was in line with economists´ expectations. "Looking further out, we expect some build-up of upward pressure on inflation from the effects of the tax cut, rising crude prices, a weaker dollar, and anti-trade policies out of the Trump administration, to at least partly offset the structural and industry-specific factors that are holding down goods inflation".

Sterling tumbled further, hitting a low of US$1.3715, as the USA dollar gained and investors further trimmed expectations that the Bank of England would raise rates next month following weak first-quarter GDP data published last week.

"Provided the Fed conveys a steady-as-she-goes approach and it isn't seen to be back tracking - and there is no reason from the data why it should - the dollar should be consolidating and pushing on from this level", said Bank of New York Mellon senior currency strategist Neil Mellor.

The New Zealand dollar extended its decline to touch $0.7032, its lowest since December 27.

Rising price pressures are encouraging the US central bank to press ahead.

Personal incomes rose 0.3 percent in March, while wages and salaries advanced 0.2 percent - the smallest gain since October. The data was included in last Friday´s advance first-quarter gross domestic product report.

US inflation hovered near the mark for years, but finally reached 2 percent in March.

The Dow Jones Industrial Average fell 258.77 points, or 1.07 percent, to 23,904.38, the S&P 500 lost 13.31 points, or 0.50 percent, to 2,634.74 and the Nasdaq Composite dropped 7.74 points, or 0.11 percent, to 7,058.52.

The Fed has marked 2 percent inflation as the right equilibrium for a growing but stable economy. There were also increases in purchases of recreational goods.

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