The Daily Update: US CPI

Yesterday we had the US Consumer Price Index (CPI) coming in slightly stronger than expected in March, rising 0.6% with the market consensus going for 0.5%. Year-on-year was also slightly stronger at 2.6% (estimates 2.5%). Excluding food and energy the month-on-month the figure was 0.3% and year-on-year 1.6%, estimates were for 0.2% and 1.5% respectively. The big driver was in energy with gasoline prices rising over 9% and a 2.5% rise in prices for piped gas. These March figures will also be attributable to low base effects as the weak prints from last March fell out of calculation.

After the report was released, we had a couple of regional Federal Reserve bank presidents offering their view to the numbers. Philadelphia Fed President Harker said ‘At this point, we don't expect inflation to be running out of control. We have time to move because we're not seeing inflation running out of control. If it does, we'll act accordingly… Some months of really low inflation are going to be rolling off the 12-month average, so you’re going to see a spike, that’s the transitory part. I think we let it run and we keep the accommodation’. Richmond Fed President Barkin also noted ‘long-term disinflationary forces, like the power of big-box retailers in the purchasing departments, like the price transparency which is enabled by the internet, and like global access to lower-cost product and talent. They’re keeping inflation expectations modulated’.

After the figures, the US Treasury auctioned USD24bn 30-year bonds at a yield of 2.32%, which was 1.8 basis points inside the existing treasury. The auction numbers showed good demand with a bid-to-cover and buy-side allocation above recent averages.