US CPI Report: What It Means for Markets and the Fed
US core inflation rose in November, reinforcing the Federal Reserve's intention to raise interest rates in the near term.
Bloomberg
Rising gasoline costs lifted inflation in February, underscoring that more modest consumer price increases may continue to be flat following a pandemic-triggered spike.
Rising fuel costs and rents offset flat food prices.
According to the Labor Department's Consumer Price Index, overall prices rose 3.2% from a year earlier, up from 3.1% in January. On a monthly basis, expenses rose 0.4% following a 0.3% gain in the previous month.
What is the core inflation rate now?
Core prices, excluding volatile food and energy commodities, which the Federal Reserve watches most closely, rose 0.4% after a similar rise in January. That still reduced annual growth from 3.9% to 3.8%, the smallest since May 2021.
Is the inflation rate falling?
Since hitting a 40-year high of 9.1% in June 2022, inflation has eased significantly. But after the rapid progress of the fall, price rises have become more volatile.
Many items, such as used cars, furniture and appliances, have gotten cheaper over the past year as supply chain issues related to Covid have been resolved. But the cost of services such as rent, car insurance and transportation continues to rise, in part because of steep increases in employee wages.
By the end of the year, Barclays expects headline inflation to ease to 2.9%, while the headline reading eases to 3.1% – both still significantly above the central bank's 2% target.
Will the Fed cut interest rates in 2024?
Federal Reserve Chairman Jerome Powell told Congress last week that the central bank will cut its key interest rate this year, but only until officials see more evidence that inflation is moving steadily toward the central bank's target. From March 2022, the central bank has raised its key short-term rate from near zero to a 22-year high of 5% to 5.25%, although officials have been on hold since July.
Over the past two months, futures markets have pushed back forecasts for the first central bank rate cut between March and June, now predicting four rate cuts this year, down from six.
Tuesday's CPI report will prompt Fed officials to wait a little longer, depending on the course of inflation over the next few months.
“While we think a May rate cut is on the table, the (Fed) will wait at least until June before starting to lower rates,” said Kathy Postjanczyk, chief economist at Nationwide.
'I've never seen it get any better'
Pat Baldwin of Detroit, Michigan, says she and her husband spent more than $418 for two round-trip train tickets to Chicago, Illinois, during the Thanksgiving holiday this year, more than double the pre-pandemic price tag.
“It's like astronomy,” said Baldwin, who is in his late 50s.
They will still make the trip, which coincides with her husband's birthday. But to cover the cost, they'll forgo their traditional Christmas train ride to a small Michigan town.
While many Americans have received big raises in recent years, helping them finally keep up with inflation, Baldwin says her wages have risen every year, lagging behind inflation.
“I don't see it getting any better,” said Baldwin, program director for the foundation, which creates classes and other activities for seniors.
Baldwin says he continues to trade. Instead of buying a hamburger or chicken at the grocery store, she waits until a protein is on sale and then stocks her refrigerator. Last fall, she had a $99 pair of dress shoes online, but bided her time until they were discounted to $39 and bought four pairs.
And to save electricity, he now washes the couple's clothes every three weeks instead of weekly and sometimes replaces the lamps with candles.
Among voters, Democrats are more enthusiastic about the economy
Inflation is a major concern for many Americans, but a growing number have recently begun to feel more positive about the economy. According to a survey Hosted by The New York Times and Siena College.
In a survey taken in late February, 26% of registered voters nationwide felt the economy was doing well or better, up 6% from July. Increased confidence is more common among older Democrats.
Why are gas prices rising again?
Gasoline prices rose 3.8% in February after four months of declines. As spring approaches, demand increases and manufacturers switch to more expensive summer mixes.
Will food prices drop in 2024?
Grocery prices were unchanged, slowing the annual increase to just 1% — the smallest since June 2021 — and providing some relief to consumers from steep price gains over the past two years. Prices for commodities such as wheat, corn and soybeans fell amid generally higher global production.
But last month the film got mixed up. Bread prices fell by 0.5%, pork by 0.8% and poultry by 1.3%.
But egg prices rose 5.8%, breakfast cereals rose 2% and fish rose 0.4% amid another bird flu outbreak.
Some good news: Restaurant bills rose just 0.1% after sharp increases tied to big employee pay raises in response to labor shortages.
Why are rents so high in America right now?
Rents have been the biggest contributor to inflation, rising 0.5% in February after several small gains. This took the annual increase from 6.5% to 5.8%. Economists expect rents to increase modestly based on new leases, but that has filtered down to existing leases more gradually than expected.
The cost of some other services continued to rise. Airfare rose by 3.6%. Car insurance is up almost 1% and has grown 20.6% over the past year. Also the cost of car repair increased by 0.4%.
While commodity prices were generally soft, some costs rose unexpectedly last month. Used car prices increased by 0.5% and clothing, by 0.6%. Others continued their descent amid improved supply chains, with prices for furniture and bedding falling 0.7% and appliances falling 0.9%.
