“Disappointing” US inflation data released on Wednesday showed an increase from February, denting hopes for interest rate cuts and raising concerns that inflation could remain high.
This data affects not only the Federal Reserve, which sets interest rates, but also candidates for the next presidential election.
The core consumer price index (CPI), which excludes volatile food and energy costs, rose 0.4% month-on-month in March, government data released on Wednesday showed.
The year-on-year rate was unchanged at 3.8%. Inflation, which includes food and fuel, was 3.5%, up from 3.2% in February.
Inflation is 9.1%, the highest level in 40 years, hit in June 2021, when consumers made purchases with government checks handed out during the COVID-19 pandemic. Although this is well below, it is still well above the US central bank's target of 2%. percent.
The Fed has been raising interest rates since March 2022, raising the benchmark overnight rate from near zero to its current range of 5.25% to 5.5%, where it has been since July.
While that has helped curb inflation, Wednesday's data shows the battle is far from over.
“We were disappointed by the 0.4% month-on-month increase in core CPI in March, which was a surprise compared to our and consensus expectations of a 0.3% increase.” This is favorable for the Fed. “Instead, more policymakers may support two rate cuts this year instead of three,” Bernard Jarosz, chief US economist at Oxford Economics, told Al Jazeera.
The latest inflation numbers and last week's jobs numbers (which showed the U.S. economy added about 300,000 jobs last month, well above expectations of less than 200,000) mean lower interest rates in an economy this strong. There is a debate as to whether or not there is. Matt Collier, an economist at Moody's Analytics, said it all will happen in 2024.
“Inflation is modest, but it's progressing more slowly than expected,” Collyar told Al Jazeera, adding that the situation makes Fed Chairman Jerome Powell's “enviable job even more unenviable in November's general election.” He added that
The Fed's last meeting before the election is scheduled for mid-September, and Powell has signaled the Fed is in no hurry to cut rates.
“Monetary policy is an inexact science and takes time to take effect. But this is a psychological effect, and the first cuts contain the message that the war against inflation has been won. “The closer we get to elections, the more complicated things become,” he said.
A rate cut is less likely if inflation is above a level the Fed considers satisfactory, or if employment and wage growth continue at a steady pace.
But they are also a sign of a “strong economy,” which typically favors incumbents, Collier said.
“This is a story of a really strong and resilient economy,” he said.
“Price-oriented”
That may be good news on paper, but voters still perceive the cost of living to be too high.
“Wages have been rising faster than inflation over the past year,” Jarosz said. “But what people are looking at is the price. The price is 20 percent higher than it was then.” [Joe] Mr. Biden was inaugurated. [as president in January 2020]And the focus on price levels is hurting the mood and hurting Biden. ”
The latest inflation data shows people are still consuming at a healthy pace, but the average American feels poorer today because prices are soaring.
“And people only look at prices in isolation and don't think that their wages have also increased,” Jarosz said.
“We're really focused on price,” he said.
That's also because “inflation is cumulative and builds up,” said Dan North, senior economist at Allianz Trade.
For example, wages are up about 15% compared to January 2021, but groceries are 21% more expensive, housing is 31% more expensive and gasoline is 41% more expensive, he said.
The National Federation of Independent Business (NFIB) announced Tuesday that its Small Business Optimism Index fell 0.9 points last month to 88.5, the lowest level since December 2012. This is the 27th consecutive month that the index has been below the 50-year average of 98. .
A quarter of small business owners say inflation is their single biggest concern, up two points from February. The percentage of companies that raised their average prices increased by 7 points.
“People still remember when it cost them and their spouse $40 to eat dinner at their favorite restaurant, but now it costs $62. They don't remember getting a raise along the way. ,” Collier said.
All of this will influence the election and should be a key deciding factor in whether Biden or his opponent Donald Trump wins votes.
Jarosz pointed out that people tend to dislike high inflation more than high unemployment.
“Inflation affects everyone, but unemployment only affects one part of society,” he said.
