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Haitong Macro Liang Zhonghua team
Authors of this report:
李俊 S0850521090002
梁中华 S0850520120001
·Summary · Overall, due to the recovery in oil prices, US inflation has rebounded continuously, while core inflation has fallen into "stagnation".
From a structural point of view, the continued rebound in inflation in March is still related to the recovery of energy prices, while the downward "stalemate" of core CPI is more related to the services sector. Core goods inflation widened the decline from February at -0.7% in March, while core services inflation rose from February at 5.4%, offsetting the contribution from core goods. It should be noted that the rebound in core services inflation in March was more related to non-rent factors, such as healthcare-related services.
In general, inflation in the United States remains "stubborn". Even excluding food and energy price disruptions, the downside headwinds to core inflation have not eased, and we believe core inflation is likely to remain elevated this year.
Expectations of interest rate cuts have cooled. According to CME observations, as of April 10, the market expects the Fed to cut interest rates to be postponed to September, which was expected to be in June, and the number of rate cuts expected to be lowered from three to two this year. Overall, market expectations for interest rate cuts have cooled further. Risk warning: The Fed's monetary policy exceeded expectations.
U.S. inflation continues to pick up. The US CPI in March was 3.5% year-on-year, up 0.3 percentage points from February, and the seasonally adjusted month-on-month was 0.4%, unchanged from February. The core CPI was 3.8% year-on-year, unchanged from February, and the core CPI was seasonally adjusted to 0.4% month-on-month, unchanged from February, unchanged for three consecutive months. In addition, the seasonally adjusted annualized rate of core CPI in March was 4.4%, which was also unchanged from February.
Overall, due to the rebound in oil prices, inflation has rebounded continuously, while the decline in core inflation has fallen into "stagnation".
From the perspective of CPI structure, the continued rebound in inflation in March is still related to the recovery of energy prices. Brent crude oil and gasoline prices widened further to 3.6% and 7.0% month-on-month in March, with energy prices turning positive sharply to 2.1% year-on-year in March, the first time since February 2023, due to the recovery in energy prices and a low base. Energy prices were also 1.1% month-on-month, positive for the second consecutive month.
From the perspective of the core CPI structure, the downward "stagnation" of the core CPI is more related to the service sector. Core goods inflation widened the decline from February at -0.7% in March, while core services inflation rose from February at 5.4%, offsetting the contribution from core goods.
The decline in core goods inflation came more from the contribution of used cars. In March, core inflation turned negative to -0.2% month-on-month, of which used car prices turned sharply from 0.5% month-on-month to -1.1%, making a large contribution. In addition, inflation in core goods excluding used cars also eased, falling to 0% m/m from 0.1% in February.
The rebound in core services inflation is more due to non-rent inflation. Core services inflation came in at 5.4% in March, up 0.2 percentage points from February, and 0.5% month-on-month, unchanged from February. Among them, the year-on-year and month-on-month housing rental inflation in March has improved, continuing the slow downward path. It can be seen that the rebound in core services inflation in March was more due to the interference of non-rent inflationary factors.
For example, services inflation excluding rents rose to 4.8% in March, the highest since April 2023, from 3.9%, and from 0.6% to 0.8%, the highest since September 2022. This is partly related to the increase in prices related to medical services. In March, the prices of hospital services turned from negative to positive to 1.0% month-on-month, and the prices of medical care services turned from negative to positive to 0.6% month-on-month.
In general, inflation in the United States remains "stubborn". Even excluding food and energy price disruptions, the downside headwinds to core inflation have not eased, and we believe core inflation is likely to remain elevated this year.
Expectations of interest rate cuts have cooled. According to CME observations, as of April 10, the market expects the Fed to cut interest rates to be postponed to September, which was expected to be in June, and the number of rate cuts expected to be lowered from three to two this year. Overall, market expectations for interest rate cuts have cooled further.
Risk warning: The Fed's monetary policy exceeded expectations.
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