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U.S. Inflation Rate Rises To 3.5%, Sending Stocks Lower

The U.S. Consumer Price Index (CPI) showed that inflation in America rose at an annualized rate of 3.5% in March, throwing the timing of interest rate cuts into doubt and sending stocks sharply lower.

On a monthly basis, inflation in the U.S. rose 0.4% in March from February of this year. Economists surveyed by Dow Jones Newswires had expected a 0.3% month-over-month gain in inflation and a 3.4% annual rise in consumer prices.

Excluding volatile food and energy prices, core inflation increased by 3.8% from a year ago, ahead of expectations for a 3.7% rise.

The results dashed investors’ hopes that the U.S. Federal Reserve will be able to start lowering interest rates anytime soon.

Futures markets now expect the American central bank to start cutting interest rates in September of this year and for there to only be two rate cuts by Dec. 31.

As recently as a week ago, markets had priced in the first rate cut happening in June and for there to be three interest rate cuts in 2024.

Stocks in the U.S. sold off sharply on news of the hot inflation reading for March, with the benchmark Dow Jones Industrial Average falling more than 400 points and all three major indices dropping nearly a full percentage point on the day.

Among components of the CPI, energy prices rose 1.1% in March from a year earlier, while shelter costs, which make up one-third of the CPI’s weighting, were up 5.7% from a year ago.

Food prices in America increased 2.2% on a year-over-year basis during March. Partially offsetting the gains was a 1.1% annualized decrease in used vehicle prices.

The U.S. Federal Reserve is next scheduled to decide on interest rates May 1.