Higher-than-expected inflation reading hits hopes of Fed rate cuts

investmentnews.com:

US consumer prices jumped at the start of the year, tempering hopes for a continued drop in inflation and likely delaying any Federal Reserve interest-rate cuts.

The so-called core consumer price index, which excludes food and energy costs, increased 0.4% from December, which was more than expected and the most in eight months, according to government figures out Tuesday. From a year ago, core CPI advanced 3.9%, the same as the prior month.

Economists favor the core gauge as a better indicator of underlying inflation than the overall CPI. That measure advanced 0.3% from December and 3.1% from a year ago.

The figures further reduce the already slim chances that Fed officials will start lowering interest rates soon, and any additional reacceleration in inflation might reignite talk that they will resume hikes. Some policymakers have said they want to see a broader easing of price pressures before cutting rates.

The S&P 500 opened lower and Treasury yields jumped after the release from the Bureau of Labor Statistics. Traders pushed out bets of when the Fed will start cutting rates and marked down March odds to almost zero.

“The Fed will view this as another reason to wait until May or June, but the direction of trend is still lower,” said Kathy Jones, Charles Schwab’s chief fixed-income strategist. “With much of the increase due to housing, it’s a waiting game to see when those costs will come down.”

The figures reflected increases in the price of food, car insurance and medical care, and shelter costs contributed to over two-thirds of the overall increase. Outpatient hospital services and pet services both rose by the most ever in the month.

Used cars dropped on a monthly basis by the most since 1969 after the methodology