WASHINGTON: US consumer inflation continued to accelerate last month, according to government data published, reducing the chances of an early interest rate cut from the Federal Reserve (Fed) in a tense election year.

The data raised the likelihood that the first Fed rate cut will come right before November’s presidential vote, which would thrust the independent US central bank into the middle of a fractious fight between President Joe Biden and his likely opponent, former president Donald Trump.

The annual consumer price index (CPI) came in at 3.5% in March, up 0.3 percentage points from February, the Labour Department said.

This was slightly above expectations of a 3.4% rise, according to a survey of economists conducted by Dow Jones Newswires and The Wall Street Journal.

Monthly inflation came in at 0.4%, also slightly above expectations.

Wall Street stocks retreated, while the yield on two-and 10-year US Treasuries jumped higher as traders digested the prospect of a later start to rate cuts.

“We have dramatically reduced inflation from 9% down to close to 3%,” President Biden told reporters in Washington.

“We’re in a situation where we’re better situated than we were when we took office where inflation was skyrocketing, and we have a plan to deal with it,” he added.

“INFLATION is BACK-and RAGING!” Trump posted to his social media site, Truth Social.

“The Fed will never be able to credibly lower interest rates, because they want to protect the worst President in the history of the United States!”

The Fed has raised interest rates to the highest level in 23 years as it attempts to bring inflation back down firmly to its long-term target of 2%.

Price increases have slowed significantly from their peak in 2022, but have crept higher in recent months, keeping markets guessing about when the Fed could start cutting rates, even as other indicators of US economic strength have remained resilient.

“You can kiss a June interest rate cut goodbye,” Bankrate chief financial analyst Greg McBride wrote in a note to clients.

“Inflation came in higher than expected, the lack of progress toward 2% is now a trend,” he added.

The indexes for shelter and petrol together contributed over half of the monthly increase, according to the Labour Department.

A widely watched inflation measure excluding volatile food and energy prices rose at an annual rate of 3.8%, in line with the data from February.

The so-called core inflation index rose 0.4% in March from a month earlier, according to the Labour Department.

“The lack of downward momentum in core inflation will be met with some discomfort” at the Fed, Ernst and Young senior economist Lydia Boussour wrote in an investor note.

“Some Fed officials are growing increasingly uneasy about cutting rates amid inflation stickiness.”

Earlier this month Fed chair Jerome Powell told a conference in California that the risk of cutting rates too soon was that “inflation does move up,” adding it “would be quite disruptive if we were to have to then come back in” to raise rates.

Futures traders, who had placed a probability of more than 50% that the Fed would cut rates by mid-June, sharply dialled back their expectations after the CPI figure was published, according to data from CME Group.

They now place a probability of more than 75% that the first cut will have arrived by mid-September.

That could prove to be politically awkward for the Fed, as the timing would be shortly before the presidential election.

 - AFP