Core prices, which are more closely monitored by the Fed and do not include volatile food and energy categories, rose by 0.4% in line with February’s increase. This maintained the 3.8% annual inflation growth rate.
Inflation Rates And Status
Core prices, which are more closely monitored by the Fed and do not include volatile food and energy categories, rose by 0.4% in line with February’s increase. This maintained the 3.8% annual growth rate. In June 2022, inflation hit a 40-year high of 9.1%; since then, it has sharply decreased. However, following a sharp improvement in the autumn, monthly price rises have escalated to a range of 0.3% to 0.4% so far this year.
Although goods prices spiked in February, products including secondhand automobiles, furniture, and appliances have become less expensive as supply bottlenecks caused by the pandemic have unraveled. But even as worker shortages have decreased, pandemic-related wage hikes have only slowed slightly, which contributes to the ongoing increase in the cost of services like rent, auto insurance, and transportation.
By year’s end, Barclays anticipates that monthly price growth will gradually slow down, lowering annual inflation to 3% and core price increases to 3.1%, which is still much more than the Fed’s 2% target.
Growing Concern About The Interest Rate Cuts
The Federal Reserve Chair, Jerome Powell, has stated in recent weeks that inflation is still approaching the 2% objective “on a sometimes bumpy path” and that the price increase in the first two months of the year may have been an anomaly. But with the economy and labor market doing so well lately, there may be increased concerns about the market-friendly interest rate cuts being delayed as a result of the larger-than-expected increase in March.
With the Fed decreasing rates just twice this year, the futures market is now wagering that the first rate cut will be postponed until September. It had been projecting the first cut in June and three reductions overall in 2024, in accordance with the median estimate provided by Fed officials last month.
Will Inflation Go Down?
Capital Economics economist Paul Ashworth stated in a letter to clients on Wednesday, “The third consecutive 0.4% (monthly) rise in core CPI pretty much kills off hopes of a June rate cut.”
The report “will undermine Fed officials’ confidence that inflation is on a sustainable course back to 2% and likely delays rate cuts to September at the earliest and could push off rate reductions to next year,” according to Kathy Bostjancic, chief economist at Nationwide.
In an effort to control inflation, the Fed has raised its benchmark short-term rate from close to zero to a 22-year high of 5% to 5.25% since March 2022; however, since July, authorities have taken a break. Higher rates tend to reduce economic activity by raising the cost of borrowing for consumers and businesses.
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