14 April 2021
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US inflation jumps in March

US inflation rebounded in March

By Daniel Richards

  • Inflation in the US jumped by 2.6% y/y as the removal of Covid-19 restrictions and flattering base effects helped to push prices higher. On a month/month basis, the headline CPI index rose 0.6%. Core CPI was more muted but managed a 0.3% gain led mainly by increases in services prices, with shelter, airfares and hotels all seeing price gains. Core goods prices though were fairly modest, rising by just 0.1% m/m despite US consumers receiving an additional USD 1,400 in stimulus checks. Markets generally shrugged at the data as a pop in inflation has been widely expected and higher headline prices are likely to persist over coming months given the low base effects from Q2 2020.
  • The day after the UK moved into ‘lockdown light’ after several months of fairly stringent restrictions, monthly GDP data for February showed a modest improvement on the previous month. February saw a m/m expansion of 0.4%, and while this narrowly missed projections of 0.5%, it compares favourably to the (upwardly revised) -2.2% seen in January. As the pandemic crisis has endured, economies have gotten consistently better and minimising the negative impact of restrictions on their output, and with restrictions easing and an effective vaccination programme in operation, the expectation is that the UK economy will continue to strengthen over the remainder of the year. Meanwhile, the aftershock of the departure from the EU is seemingly easing its way through the trade figures and goods exports to the currency bloc grew 56.9% in February, offsetting much of the 45.7% contraction seen in January. Alongside the new red tape frictions and the lockdown, January exports were down as many exporters had pushed their business through early ahead of the withdrawal as far as possible.
  • Germany’s ZEW expectations survey declined in April, falling to 70.7. This compares to 76.6 the previous month and is some way short of consensus projections of 79.0. The current situation survey came in at -48.8 however, slightly better than the projected -54.1. The decline in the expectations index comes as little surprise in the midst of a deteriorating environment with regards the Covid-19 pandemic and expected restrictions.
  • The Dubai Land Department is reportedly considering a three-year rent freeze in Dubai, claiming it will help stabilise the market.

Today’s Economic Data and Events

13:00 Eurozone industrial production m/m, February: forecast -1.2%

Fixed income

  • A successful auction of 30yr USTs and markets seemingly looking through the jump in March CPI helped spark a rally in Treasury markets overnight. Gains were concentrated at the longer-end of the curve although yields on the 2yr UST were down by a little less than 1bp to settle at 0.1589%. On the 10yr, however, yields moved from an intraday higher of over 1.7% to close at 1.6145%, down almost 9bps.
  • Inflation popped in March, largely as expected though the month/month gains were driven by a large jump in gasoline prices. But core goods prices barely moved higher despite consumers receiving additional stimulus checks of USD 1,400. Services prices rose faster but we don’t expect pent up demand for services to be high every month: as Fed chair Jerome Powell noted there are only so many times you can go out to eat or make use of a hotel.
  • Bond markets outside of the US were more mixed overnight with modest gains in both French and UK bonds while bunds were lower. Compared with recent weeks of trading, emerging market local currency bonds were essentially quiet with South African 10yr yields closing up just 1bps and Turkish 10yrs adding 7bps to 17.44%.


  • The drop in UST yields did the dollar no favours and the broad DXY index fell by 0.3% overnight to close back below the 92 level for the first time since mid March. Gains were spread across all major pairs as US inflation data failed to set alight fears of imminent rate hikes. EURUSD added 0.3% to close at 1.1948 and has pushed above 1.1960 in early trade today. USDJPY fell by around 0.3% to 109.06. GBP USD closed largely flat despite some intraday wobbles.
  • NZD has been the main gainer in commodity currency markets in the past few days as markets awaited the outcome of today’s RBNZ decision. The bank kept policy rates on hold at 0.25% and maintained its target for QE of NZD 100bn.
  • INR continued to lose ground overnight USDINR rising by 0.42% to 75.37, its sixth day in a row of weakening. Increasingly restrictive Covid-19 measures are coming into effect in Maharashtra state, weighing on the growth outlook for India’s economy. By contrast USDTRY showed little apparent response to news that Turkey is also introducing movement restrictions and partial lockdowns: USDTRY actually appreciated overnight, closing at 8.1198, down 0.46%.


  • Global equity markets were generally higher overnight in anticipation of earnings season kicking in. The NASDAQ was the biggest gainer of the primary US indices, rising 1.1%, with the S&P 500 up 0.3%, but the Dow Jones closed moderately lower at -0.2%.
  • In Europe, the UK’s FTSE 100 was the laggard, closing flat, but there were modest gains for the DAX (0.1%), the CAC (0.4%) and the composite STOXX 600 (0.1%).
  • Things were slower within the region, where the DFM closed -0.8% lower, the Tadawul -0.7% and the EGX 30 -1.4%.


  • Oil prices received a boost overnight with all benchmarks gaining on OPEC revising its demand expectations higher. Brent futures added 0.6% to settle at USD 63.67/b, WTI gained 0.8% to close back above USD 60/b while Murban gained almost 0.9% to close at USD 62.47/b.
  • OPEC revised its demand forecast up by 190k b/d for 2021, expecting growth of around 6m b/d this year. Demand was revised lower in Q1 thanks to lockdown measures imposed across major economies but Q4 demand expectations were revised higher. It’s another about face from OPEC as it essentially reverses the assessment that OPEC+ gave just before its decision to increase production for the months up to July.

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Written By

Daniel Richards Senior Economist

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