Unexpectedly high US consumer inflation in February
Unexpectedly high US consumer inflation in February
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Government data indicates that US consumer price rises unexpectedly accelerated in February due to rising energy costs. (Image: Getty Images) AFP/Mario Tama/North AmericaGovernment data indicates that US consumer ) |
WASHINGTON: US government data released on Tuesday, March 12, revealed a surprising acceleration in consumer inflation in February. This event is expected to cause policymakers to tread carefully when considering whether to begin reducing interest rates.
The expense of living is still making life difficult for households, even if price hikes have decreased from their peak in 2022.
The expense of living is still making life difficult for households, even if price hikes have decreased from their peak in 2022.
This puts more pressure on President Joe Biden, who is seeking reelection this year and hopes to win over voters with his economic initiatives.
The Labor Department announced on Tuesday that the annual consumer price index (CPI) for the previous month was 3.2%, indicating that these pressures could not subside anytime soon.
Although it decreased marginally to 3.8%, the "core" CPI measure—which excludes volatile food and energy prices—remained higher than the 3.7% economists had predicted.
In addition, Biden emphasized that the most recent report showed that efforts to reduce inflation were still ongoing, noting that "annual core inflation is the lowest since May 2021."
In a statement, he acknowledged that more work has to be done to cut expenses and support the middle class, but he noted, "Wages are rising faster than prices over the last year and since the pandemic."
Although it decreased marginally to 3.8%, the "core" CPI measure—which excludes volatile food and energy prices—remained higher than the 3.7% economists had predicted.
In addition, Biden emphasized that the most recent report showed that efforts to reduce inflation were still ongoing, noting that "annual core inflation is the lowest since May 2021."
In a statement, he acknowledged that more work has to be done to cut expenses and support the middle class, but he noted, "Wages are rising faster than prices over the last year and since the pandemic."
The housing and fuel indexes also increased in February, according to the Labor Department.
According to the statement, their combined contribution to the rise in the total index last month was above 60%.
Over the course of the month, inflation increased to 4.4% from 3.3% in January.
whether determining whether to begin lowering interest rates, the Federal Reserve is expected by analysts to prioritize "core" inflation, a move that will likely boost economic activity.
In 2022, the central bank initiated a sequence of swift interest rate hikes to control unyielding price increases. However, during recent meetings, the rate was maintained at its highest point in almost two decades.
The Federal Reserve has hinted that rate reduction may begin this year, provided that there sustained reduction in inflation.
According to the statement, their combined contribution to the rise in the total index last month was above 60%.
Over the course of the month, inflation increased to 4.4% from 3.3% in January.
whether determining whether to begin lowering interest rates, the Federal Reserve is expected by analysts to prioritize "core" inflation, a move that will likely boost economic activity.
In 2022, the central bank initiated a sequence of swift interest rate hikes to control unyielding price increases. However, during recent meetings, the rate was maintained at its highest point in almost two decades.
The Federal Reserve has hinted that rate reduction may begin this year, provided that there sustained reduction in inflation.
However, achieving its longer-term objective of 2% inflation may provide difficulties along the rocky road.
'DISINFLATION' SIGNS
Shelter inflation was noted by the Labor Department as a significant contributor to the total index, but it decreased month over month to 0.4 percent from 0.6 percent in January.
Volatile energy prices saw a 2.3% increase in January and February, reversing the prior month's decrease.
According to Ryan Sweet, chief US economist at Oxford Economics, a "pessimistic scenario" would be one in which interest rates remain high for an extended period of time while inflation increases and expectations for price gains rise.
The Fed would then be forced to begin raising interest rates once more.
However, Sweet noted that this is an improbable scenario, "especially given the disinflation that is expected due to declining market rents and a slowdown in nominal wage growth."
"PATIENT" METHOD
However, Sweet noted that this is an improbable scenario, "especially given the disinflation that is expected due to declining market rents and a slowdown in nominal wage growth."
"PATIENT" METHOD
Before deciding to decrease interest rates, regulators, according to economists, will likely want to see more proof that prices are declining sustainably.
Delaying the first cut from May to June, according to Sweet, "would have little importance for the broader economy," including statistics on economic growth.
"High-frequency economist Rubeena Farooqi said, 'The latest data further reinforce the case for a patient and vigilant approach from Fed officials."
Delaying the first cut from May to June, according to Sweet, "would have little importance for the broader economy," including statistics on economic growth.
"High-frequency economist Rubeena Farooqi said, 'The latest data further reinforce the case for a patient and vigilant approach from Fed officials."
Fed representatives will probably tread cautiously at their policy meeting the following week.
According to Lydia Boussour, a senior economist at EY, "the short-term dynamics point to some levelling off in inflation trends."
She pointed out that the CPI had increased on a three-month annualized basis, in addition to the headline number.
However, she anticipates that the Fed will continue to reduce rates by 100 basis points this year and that inflation will continue to decline.
According to Lydia Boussour, a senior economist at EY, "the short-term dynamics point to some levelling off in inflation trends."
She pointed out that the CPI had increased on a three-month annualized basis, in addition to the headline number.
However, she anticipates that the Fed will continue to reduce rates by 100 basis points this year and that inflation will continue to decline.
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