US TIPS breakeven rates flat after in-line March PCE data

Another U.S. inflation measure, the Labor Department's consumer-price index, fell a seasonally adjusted 0.1% in March from the prior month, cooling from February's 0.2% gain.

The personal consumption expenditures price index excluding food and energy costs rose 1.9 percent in March from a year earlier, up from a 1.6 percent increase in February, the data showed.

The so-called core PCE price index rose 0.2 percent on a month-on-month basis in March after a similar gain in February.

What happened: Inflation has been increasing steadily for months owing to the rising cost of oil, higher home prices, the tightest labor market in decades and a strong US and global economy.

Year-over-year inflation hit the Federal Reserve's 2% target for the first time in over a year in March, a sign of strengthening US inflation pressures that could encourage the Fed to continue lifting interest rates this year.

Fed officials are widely expecting the inflation will go up this year and stabilize around the central bank's 2-percent target over the medium term, based on optimistic economic outlook.

Annual inflation readings in March of previous year were held down by large declines in the price of cell phone service plans, and decelerated through much of 2017. Last month's increase was in line with economists' expectations.

The uptick in inflation came a day before the Federal Reserve two-day policy meeting that begins on Tuesday.

Currently, interest rates futures imply traders have priced in a 45 percent chance the US central bank will raise short-term borrowing costs three more times in 2018 with the next hike at its June 12-13 meeting, CME Group's FedWatch program showed.

The data in the April 30 report were largely telegraphed in last week's figures on first-quarter gross domestic product, which showed consumers pulled back on their spending after a robust end to 2017. The yield on 10-year US Treasuries dipped to 2.95% from 2.96% at the end of last week's trading activity. Inflation is also likely to be fanned by an anticipated pickup in economic growth, driven by a $1.5 trillion tax cut package and increased government spending.

Meanwhile, the United States personal income and spending rose 0.3 per cent and 0.4 per cent respectively in March, the same filing said. The so-called real consumer spending fell 0.2 percent in February.

Manufacturing data on Monday also offered an upbeat assessment of the economy. This compared with a 1.6 percent increase in February. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy.

  • Eleanor Harrison