US: Sticky inflation taking hold. The March inflation print marked the third month in a row that prices pressures surprised on the upside, triggering a spike in US yields across the curve. Headline and core CPI both came in at 0.4% m/m (higher than consensus of 0.3%). Shelter and gas prices were the two main culprits behind the elevated inflation print. Notably, categories including apparel, medical care, and transportation services also saw meaningful price increases, indicating that inflation is broad-based.

Implications of the strong labour market. Withstanding two years of monetary policy tightening, the US economy continues to chug away at above-trend growth rate, pulling up the labour market with it. The statistics are impressive across a wide range of measures. Unemployment is below 4%, weekly initial claims for unemployment insurance has been near historical lows for over two years, and the labour force participation rate is on the rise after a few years of pandemic-driven dip. Labour market would have been even tighter had it not been for the fact that immigration has picked up, boosting the supply of workers.

Sharp rebound in inflation unlikely. The difference with prevailing inflation and what was seen in 2022 is that it is taking place under favourable supply side conditions, ensuring a cap on potential upside risks going forward. However, clear signs of a high-pressure economy, characterised by strong growth and sticky inflation, is going to make it rather difficult for the Fed to (i) express comfort with the inflation trend and (ii) embark on a rate cut cycle any time soon. Our longstanding call has been rate cuts only in 2H24. That call remains intact, although the type of rate cuts plausible under the prevailing macro scenario is now mired in uncertainty.

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