Danni Hewson, AJ Bell head of financial analysis, comments on the latest US inflation figures:
“If this was a Disney production inflation would have cooled considerably in the month of February, paving the Fed’s path with sparkling yellow bricks and giving them much needed breathing space to ponder how its interventions have impacted the financial sector. But this isn’t a fairy tale, and the Fed has an increasingly pot-hole strewn path to navigate.
“When you look at the data over 12 months it is an improving picture, but month on month prices are heading the wrong way. Ordinary Americans will be relieved to see food price inflation cooling off a touch, but the price they’re paying at the pump has nudged up again and rent prices have spiked.
“The core figure that excludes those volatile factors of energy and food doesn’t look too pretty either, as price hikes became further entrenched in most parts of the service sector.
“Whereas a couple months ago getting back in the region of the two percent target seemed like simply putting one foot in front of the other, today it feels like those feet are stuck in the muck and figuring out how to pull the US economy out of that hole now seems far from straightforward.
“It almost feels redundant to say it at this point, but markets don’t like uncertainty. The new year rally was stopped in its tracks after the Fed warned it was going to have to work harder to get inflation under control. More rate hikes were priced in, and investors rebalanced their portfolios accordingly with banks one of the sectors drawing a fair bit of interest.
“Fast forward just a few days and the shockwaves reverberating around global markets following the collapse of not one, but two US banks has forced investors back on that unwelcome rollercoaster that was such a fixture of 2022.
“Add this rate hike x-factor into the general nervousness about exactly how robust the global banking sector actually is, and you’ve got quite the cocktail. Slip in a dash of still too-hot inflation and it’s a recipe for a hangover without the party.”
