Last week’s CPI number instantly killed hopes of a US rate cut over the next few months, triggering a sell-off across financial markets. During March, bond yield differentials pointed to a 73pc probability of a rate cut in June, which had fallen to 53pc at the start of last week.
But after news inflation rose sharply in March, the probability of a June rate cut collapsed to 21pc, as US shares fell and bond yields surged.
The Bank of England is bound to be heavily influenced by the Fed. The Monetary Policy Committee, as I’ve written before, lacks the courage and cognitive diversity to act unilaterally – and will ultimately fall into line behind other central banks.
Headline UK inflation has, of course, fallen steeply of late – to 3.4pc in February, down from 4pc the previous month. Another drop is expected when inflation data for March is released on Wednesday.
Despite that, discouraging US inflation data is prompting speculation a delay in any downward shift by the Fed will see UK borrowing rates remaining at their 16-year high of 5.25pc for longer than previously forecast.
The MPC will be mindful, of course, that fears US rates will stay up support the value of the dollar, putting upward pressure on UK inflation via a weaker pound and higher import costs.
A stronger dollar, of course, also pushes up the price of crude oil – which is priced in the US currency – not least for countries dependent on energy imports.
