US inflation data casts doubt on whether current interest rates are appropriate

Latest CPI data from the US for January was surprisingly high, raising red flags as far as early interest rate cuts are concerned. Core inflation, at 3.9%, is almost double the Fed’s 2% target. The main culprits were food inflation, which can be volatile; shelter inflation, which remains far too high and needs to be curtailed; and motor vehicle insurance, up over 20% year-on-year, reflecting a post-Covid catch-up by insurers. The market continues to expect the first interest rate cut in June, but the next three months will be critical.