2023-04-29 10:06:00
An American store
America’s economy
Inflation fell to 4.2% in March
Low energy prices contributed to a large extent in reducing inflation in March in the United States, but that may not be enough to prevent the US Federal Reserve from raising interest rates once more next week.
According to the Personal Consumption Expenditure Price Index (PCI), for which the Ministry of Commerce published figures on Friday, inflation reached 4.2% in March, a significant decline from the previous month (5.1%), and is at its lowest level in two years.
Within just one month, the price rise also slowed down and amounted to 0.1%, which is in line with analysts’ expectations, as reported by the “Briffing.com” website and reported by “Agence France Presse”.
But core inflation, which excludes food and energy prices and makes up the data the Fed especially watches, fell slightly to 4.6 percent in one year, from 4.7 percent in the previous month, and now outpaces inflation.
Within one month, core inflation reached 0.3%, the same as it was in February.
And the chief economist of the “HFE” group, Rubella Farouki, said that “core inflation is slowing slightly, but it is still much higher than the target” set by the Federal Reserve, considering that the course of the past month is still not enough to push the institution to wait for another rise.
In fact, the Federal Reserve, which performs the duties of the central bank, wants to return inflation to its target of 2% within one year.
Prices for services are high
So far, prices have been mainly driven by external shocks and their impact on raw materials and foodstuffs. Energy especially had a direct effect on the overall height.
But that is no longer the case. Energy prices fell nearly 10% in March and the rise in food prices slowed sharply to 8% in one year.
More generally, product prices returned to acceptable levels with an increase of 1.6% over one year.
Inflation is now focused on the services sector, whose prices are still witnessing inflation of 5.5%, although here too the trend is slowing compared to the previous month (5.8%).
All this is supposed to prompt the Federal Reserve, whose monetary committee will meet next week, to continue raising interest rates, which currently stand between 4.75% and 5%, compared to between 0% and 0.25% a little over a year ago.
Markets expect a further rise in core prices of 0.25 percentage points.
Luke Bartholomew, chief economist at an investment firm, said: “We believe that a rate hike next week will mark the highest point in this tightening cycle.”
“The Fed may need some time to assess the impact of the rapid tightening it has been pursuing in the past 18 months before making a decision on Marah,” Bartholomew added.
Slow economy
With an inflation rate now below interest rates, the Federal Reserve is entering a new phase, which is the phase of actual monetary tightening, which may have a greater impact on the economy.
This is what is really starting to show up anyway. The job market certainly remains very strong with an unemployment rate of around 3.5%, but the US economy slowed in the first quarter and rose 1.1%, the lowest annual pace since the post-COVID-19 recovery.
In addition, most analysts expect the United States to witness the most difficult end of the year with weak growth and even recession in the next two quarters, mainly due to the tightening of credit conditions.
The Fed fears “generalized inflation in the economy,” said Lisa Cook, a member of its board of governors, on April 21.
She pointed out that the various measures of inflation “returned from their high levels, but they remain high, which indicates generalized inflation in the economy.”
“The big question is whether and how quickly inflation will continue on its downward trajectory,” she added.
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