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March Inflation Report: Gold Up 0.6%, Hopes for Rate Hike Down

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March inflation at -0.1% in the US

The US CPI (consumer price index) measure of inflation rose for a second month in March, according to an April 17 report published by the U.S. Bureau of Labor Statistics. The CPI inflation measure increased by 0.2% over the previous month and fell to -0.1% on a year-over-year basis in March. March figures were in line with consensus forecasts. The rebound in oil prices, as well as rising home prices, have helped the inflation rate recover in the US.

Within the index, prices rose in the medical care sector, as well as the used cars and trucks, apparel, new vehicles, household furnishings and operations, and recreation sectors. And, airline fares continued a declining trend in March.

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The core CPI measure, which excludes volatile food and energy prices, increased by 0.2% in March on a month-over-month basis, and by 1.8% on a year-over-year basis, the largest increase since October. The March rise in consumer prices casts doubt on the federal funds rate hike in June that many analysts are expecting.

Gold prices are sensitive to US inflation rate

Gold (GDX) prices, which are sensitive to US monetary policy, rose on the news. Rising rates boosts the US dollar upon which the metal is priced, and increases the opportunity cost of holding the precious metal. Spot gold was up 0.6%, boosting gold miner Newmont Mining (NEM) stock up by 3.2% on Friday. Newmont was among the top gainers for the day. Gains were also seen by toy maker Mattel (MAT) and pharmaceutical company Mylan (MYL).

Leading indicators point to steady growth in the US

The Conference Board Leading Economic Index, or LEI, issued monthly, is a composite index of US (SPY) economic indicators that lead overall economic activity. The LEI serves as a good predictor of business cycles and is based on ten different economic statistics:

  • average workweek
  • initial jobless claims
  • new orders of consumer goods
  • new orders of capital goods
  • Institute of Supply Management index of new orders
  • Leading Credit Index
  • the interest rate spread
  • building permits
  • consumer expectations
  • stock prices

The LEI increased by 0.2% in March, following a 0.1% increase in February and a 0.2% increase in January. Yet the figure is below the market consensus of 0.3%.

Positive aspects of the report include the jobless claims component as well as the yield spread. These results reflect the Fed’s zero lower bound key interest rate policy and consumer expectations.

Meanwhile, the European Central Bank’s stimulus package seems to be taking effect in the Eurozone, where the inflation rate is recovering from its recessionary abyss.

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