Stock markets are giving way
US inflation rate increases unexpectedly – DAX drops
April 10, 2024, 3:28 p.m
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For the second time in a row, inflation in the USA has risen surprisingly significantly. The inflation rate is now 3.5 percent compared to the previous year. In view of this news, the indices on the European stock exchanges are turning negative. A rate cut in June is becoming increasingly unlikely.
Inflation in the USA unexpectedly increased significantly in March. Consumer prices rose by 3.5 percent compared to the same month last year, as the Labor Department in Washington announced. In February the increase was 3.2 percent. Economists had only expected 3.4 percent. On a monthly basis, prices rose by 0.4 percent. Here too, experts had expected less. This makes an imminent interest rate cut in the USA less likely.
The news of the US inflation rate caused European stock markets to plummet. DAX and EuroStoxx50 gave up initial price gains and turned negative. The German leading index lost up to 0.7 percent and temporarily fell below the 18,000 point mark, while its European counterpart fell by up to 0.8 percent. However, as trading continued, the DAX rose above the 18,000 point mark again.
“Inflation in the service sector, especially the cost of housing, is once again preventing the disinflation process in the United States from continuing. The monetary authorities in Washington are unlikely to like this at all,” said Dirk Chlench from the Landesbank Baden-Württemberg.
“The last mile is the hardest”
Thomas Gitzel, chief economist at VP Bank, commented: “The air that is still left in the inflation balloon does not want to move any further at the moment. The inflation rate has been regularly bouncing off the three percent mark since the spring months of 2023. This shows: the last mile is there most difficult.”
The US Federal Reserve is counteracting inflation with a high interest rate policy and is aiming for a figure of two percent. After some aggressive increases, the US Federal Reserve paused several times and kept the key interest rate constant in the range of 5.25 to 5.50 percent.
Economists do not expect any change for the interest rate decision on May 1st. Fed chief Jerome Powell recently confirmed that there is a prospect of a turnaround in interest rates this year. Inflation is on the way to the Fed’s target of two percent, although on a “sometimes bumpy path.”