Market Wire: Dollar Weakens on Continued Evidence of Disinflationary Processes Unfolding in the US Economy

US consumer inflation slowed more than expected last month, but underlying prices continued to rise, keeping odds on a quarter-point hike at the May Federal Reserve meeting relatively firm. According to data published by the Bureau of Labor Statistics this morning, the headline consumer price index rose 5.0 percent in March from the same period last year, up 0.1 percent on a month-over-month basis. This was slightly below the the 5.1 percent and 0.2 percent consensus estimates among economists polled by the major data providers ahead of the release.

Energy costs slid 3.5 percent month-over-month, while the food index remained unchanged. With highly-volatile food and energy components excluded, core prices rose 5.6 percent year-over-year - gaining 0.4 percent over the prior month.

New vehicles grew 0.4 percent more expensive, and used cars fell -0.9 percent, continuing to unwind post-pandemic excess. Shelter increased 0.6 percent after rising 0.8 percent in February.

Equities are surging and Treasury yields are down as investors position for further loosening in the year ahead, but implied odds on a quarter-percentage point increase at the Fed’s early-May meeting look fairly stable relative to the 75-percent threshold reached before the release. The dollar is pushing lower against its major counterparts.

From a broader perspective, today’s data shouldn’t deliver any earthshaking insight: as markets have long anticipated, headline inflation is trending lower even as labour market tightness keeps core price measures elevated. When set against a gradual easing in regional bank tensions, this should put the Fed on course toward delivering a final rate hike before pausing to see how its earlier monetary tightening efforts influence growth and inflation outcomes.