Inflation persisted in March, with the headline consumer price index coming at a 3.5% increase over last year, according to the Bureau of Labor Statistics, well above the Federal Reserve's target of 2%. For the month, the CPI was up 0.4%.

The CPI release compounded last week's stronger-than-expected jobs report and furthered dampened hopes in the CRE world for an interest rate cut this quarter.

“There is a heightened likelihood that the Fed may postpone its first interest rate cut longer than anticipated, further dimming the outlook for multiple rate cuts this year," Peachtree Group CEO Greg Friedman told Bisnow by email.

As of March, a majority of the members of the Federal Open Market Committee, which sets the federal funds rate, said that three interest rate cuts would be appropriate this year, though others thought two cuts would be the better course. But the longer inflation stays above the target rate, the longer the committee will wait to deliver a rate cut so badly desired by CRE.

Wall Street reflected the dour mood brought on by the inflation numbers. The Dow Jones Industrial Average, S&P 500 and Nasdaq all ticked down more than 1% on Wednesday morning. Yields on government bonds climbed after the report, with 10-year Treasurys reaching 4.5% for the first time since late last year.

Commercial real estate will continue to face massive headwinds as a higher interest rate environment forces the recalibration of asset values, though that in turn will open up new investment opportunities, Friedman said.

“Speakers for the Fed have often highlighted that two lower inflation prints are required for them to become confident that interest rate cuts are justified,” Barclays Private Bank Chief Market Strategist Julien Lafargue told Bisnow by email.

There are still two CPI reports to come, for April and May, before the next FOMC meeting, as well as two more Producer Price Index reports, Lafargue pointed out.

“With that in mind, forthcoming data may not carry as much significance as the headlines might imply,” Lafargue said.

As in previous months, much of the increase in March was due to rising rents and mortgage costs. The BLS categorizes those under its shelter index, which was up 5.7% year-over-year in March and 0.4% for the month.

Median U.S. multifamily asking rents rose 1% in March from a year ago, Redfin reports, though it was up more in some regions, such as 5% in the Midwest.