U.S. inflation intimidates stock market
We were supposed to be entering the time of the year when inflation should be trending downward and stock markets could get back to a “normal” state of slow growth or perhaps marginal pullbacks.
Instead, the U.S. stock market has been on a relatively fast climb, even though high inflation should have begun to drag it down. Something had to give. And on Wednesday, the stock market gave back about 1% of its gains so far this year, as the U.S. Bureau of Labor Statistics reported that the U.S. consumer price index (CPI) jumped 3.5% in March 2024. Core CPI (excluding food and energy) was even higher at 3.8%.
Shelter and gas costs were the main culprits in driving the increased CPI number, and were responsible for more than half of the 3.5% increase. New and used cars were bright spots in the report, as they had price declines, when compared to a year ago. Groceries costs were largely unchanged, but prices were up across virtually all services.
U.S. President Joe Biden said, “Today’s report shows inflation has fallen more than 60% from its peak, but we have more to do to lower costs for hardworking families. Prices are still too high for housing and groceries, even as prices for key household items like milk and eggs are lower than a year ago.”
Meanwhile, the Bank of Canada (BoC) decided—as was widely anticipated—to continue to hold interest rates at 5% on April 10. BoC governor Tiff Macklem stated that a June rate cut was “within the realm of possibilities,” but he needed to see a further decline in core inflation to be sure the recent downward inflation trend was “not just a temporary dip.”
This latest inflation reading out of the U.S. led several market commentators to speculate that summer rate hikes may be off the table for our neighbours to the south. If the U.S. Fed continues to delay rate cuts, it’s going to put pressure on the BoC not to cut rates, too, as doing so will drive the value of the Canadian dollar down, relative to the U.S. dollar.
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Have money, will travel
Delta CEO Ed Bastian summarized the strong demand, saying: “Consumers continue to prioritize travel as a discretionary investment in themselves. […] We’re flying even higher level of capacity this summer than last, and we expect our overall pricing levels are going to remain largely the same.”
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