Emerging markets sweat as US inflation soars to 3.5%

The US inflation rose faster than expected in March to 3.5 percent, in a sign that the fight to slow inflation has stalled and interest rate cuts could take longer than planned.

That’s a cause of concern for emerging markets who need lower US interest rates to be more attractive to foreign portfolio investors.

The US Consumer Price Index report showed that prices rose 3.5 percent in March from 3.2 percent in February, the US Labor Department said.

On a monthly basis, prices rose 0.4 percent in March, higher than expectations of a 0.3 percent increase.

This marked the third month in a row that inflation exceeded expectations.

Higher costs for fuel, housing, dining out and clothing drove the increase.

Analysts warned that the lack of progress in curbing price rises will force the US central bank to keep interest rates higher for longer.

The Federal Reserve’s key interest rate is now at the highest level in more than two decades, in the range of 5.25 percent -5.5 percent.

Many had expected the bank to start lowering borrowing costs this year, reflecting the fact that the inflation rate, which tracks the pace of price rises, has fallen significantly since hitting 9.1 percent in 2022.

Yesterday the US Stock market fell with the Dow Jones Industrial Average, a U.S.stock index, down more than 400 points to its lowest close in nearly two months.

Yields climbed on U.S. government bonds, reflecting bets that the data could help delay and diminish future interest-rate reductions.