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Editor’s note: The article has been updated to reflect a small increase in gold prices following the CPI data
(Kitco News) – In a delayed reaction, the gold market sees strong momentum again as the pressure on the consumer price increased in March.
The U.S. Department of Labor said Tuesday that the U.S. consumer price index rose 0.6 percent in March after rising 0.4 percent in February. The data was slightly stronger than expected. Consensus forecasts expected an increase of 0.5%.
“The 1-month increase was the largest increase since a 0.6 percent increase in August 2012,” the report said.
The report said annual headline inflation rose 2.6% last month.
As a result of volatile food and energy prices, core inflation rose by 0.3%, which is also higher than expected. Economists expected a 0.2% increase.
For the year, the core CPI rose by 1.6%, the report said.
In the first reaction, the gold market stepped into a positive area. However, the market is starting to pay some attention to the inflation data. Gold futures in June last traded at $ 1,741.30 an ounce, up 0.50% on the day.
Economists and market analysts note that rising inflationary pressures will help ease the selling pressure in the gold market, as nominal bonds have risen sharply since the beginning of the year. Market analysts note that higher inflationary pressures mean that real interest rates will remain at historically low levels.
However, some market analysts note that the risk in higher inflation is that it could encourage the Federal Reserve to raise interest rates sooner than expected.
The Federal Reserve has repeatedly said in recent times that it does not expect to raise interest rates until they see signs that the US economy is well on its way to recovering from the COVID-19 pandemic.
Although inflation is rising, many economists are warning consumers to look beyond the data, as last year’s COVID-19 disruptions will affect annual forecasts. CIBC said it expects the CPI to rise to 2.5% this year, but it will be bypass.
However, CIBC senior economist Katherine Judge said investors would see an interest rate hike sooner than expected.
“It will only be in 2022 if an earlier closure of the output gap on a more sustainable basis leads to core price pressure moderately above 2%, which, however, causes the Fed to increase as early as the third quarter of 2022,” she said. .
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