(Kitco News) - The gold market is holding healthy gains above $3,100 as U.S. inflation pressures fell more than expected last month.
The Consumer Price Index (CPI) fell by 0.1% last month after February’s 0.2% increase, the U.S. Bureau of Labor Statistics announced on Thursday. The inflation data was cooler than expected because economists were looking for a 0.1% increase.
The report noted that headline inflation rose by 2.4% over the last 12 months, down sharply from the 2.9% reported in February. Economists had expected annual inflation to rise by 2.5%.
Core CPI, which strips out volatile food and energy prices, increased by 0.1% last month, also coming in cooler than expected. According to consensus estimates, economists had forecast a 0.3% increase in core consumer prices.
The report stated that annual core inflation rose by 2.8% last month. Economists were expecting to see annual inflation rise by 3.0%.
Core inflation, over the past 12 months, rose at its slowest pace since March 2021, the report said.
The gold market saw some profit-taking from its session highs in its initial reaction to the latest inflation data. Spot gold was last traded at $3,117.50 an ounce, up 1.15% on the day.
U.S. inflation has become a complicated issue for the gold market. Elevated consumer prices are forcing the Federal Reserve to maintain a neutral monetary policy, keeping rates unchanged, which increases the opportunity costs of holding gold; however, higher inflation is also increasing the risks that the U.S. could fall into a recession, which is supporting safe-haven demand for the precious metal.
Weaker inflation data give the Federal Reserve room to cut interest rates, but it also eases fears of stagflation.
Falling oil and gasoline prices were the biggest factor behind the drop in inflation. The report said that the energy index dropped by 2.4% last month, with a 6.3% decline in gasoline prices.
However, food prices remained elevated, rising 0.4% in March.
The report noted mixed inflation pressures in core consumer prices.
“Indexes that increased over the month include personal care, medical care, education, apparel, and new vehicles. The indexes for airline fares, motor vehicle insurance, used cars and trucks, and recreation were among the major indexes that decreased in March,” the report said.
Looking ahead, economists noted a high level of uncertainty surrounding inflation expectations. Last week President Donald Trump announced broad reciprocal trade tariffs; however, on Wednesday, a week after his initial announcement, he halted the tariffs for 90 days. At the same time, he is maintaining a 10% baseline tariff on imported goods.
Economists have said that tariffs will drive consumer prices higher, but the flip-flopping policies make it difficult to pinpoint how high inflation will rise.
