US inflation worries rekindled

While the news on Tuesday had suggested an end to rate hikes from the Federal Reserve, yesterday's report on the CPI was less benign. From Reuters:

Core inflation in March rose at its fastest rate in a year as clothing and housing costs jumped, according to data on Wednesday that led markets to trim expectations for a quick end to Federal Reserve interest-rate hikes.

The Labor Department said the core Consumer Price Index, which excludes food and energy, advanced 0.3 percent last month, while a 1.3 percent spike in energy prices helped push the overall index up an even steeper 0.4 percent...

Still, the 12-month rate of advance in the core index remained at a relatively benign 2.1 percent. The 12-month rise in overall consumer prices slowed to 3.4 percent from the 3.6 percent rise registered through February.

The macroblog points out that the median CPI -- "probably a better predictor of the inflation rate going forward" -- rose 0.4 percent in March and 2.7 percent over the past 12 months, and suggests that overall, the report "is one to frown about".

Meanwhile, The Prudent Investor still thinks that rate hikes will continue "with Fed Funds between 5.25% and 5.75% by yearend".

Barry Ritholtz at The Big Picture thinks that with a Fed halt now baked into the cake, a "pause/resume scenario" could be "perilous for the markets". But even if the end of rate hikes is truly near, he points out that that is not necessarily good news for stock markets: "In the majority of past Fed tightening cycles, stock prices were lower six months after the final rate hike."

Elsewhere in the world, there is similar uncertainty in the UK over the future direction of monetary policy. From Reuters:

The Bank of England's Monetary Policy Committee was split 7-1 on its decision to leave interest rates at 4.5 percent this month as Stephen Nickell voted for a quarter percentage point cut for the fifth month running.

Minutes of the April 5-6 meeting published on Wednesday showed that overall the MPC thought there had been little news since the March meeting with economic growth continuing steadily and inflation staying close to its 2.0 percent target.

As such, the minutes did little to settle the debate about whether the next move in interest rates will be up or down. Analysts had predicted the 7-1 vote and generally expect the MPC to keep rates steady for at least the next few months.

But Japan still looks headed for higher official interest rates, even if not quite in the near future. AFX/Forbes:

The index of leading economic indicators for February has been revised upward to 90.9, more than the preliminary reading of 80.0, the Cabinet Office said.