March saw high inflation for a third consecutive month, which begs the question of when the Federal Reserve will be able to start lowering interest rates because it will know that price pressures have abated.
The Labor Department’s consumer price index shows that overall prices rose 3.5% from a year ago, up from 3.2% in February, mostly due to rising rent and gas prices. Like the previous month, costs increased by 0.4% on a monthly basis.
What is the current rate of core inflation?
Core prices, which are more carefully examined by the Fed and do not include volatile food and energy categories, rose by 0.4% in line with February’s increase. As a result, the yearly growth remained at 3.8%.
Do we actually have less inflation?
The rate of inflation has significantly decreased since it peaked in June 2022 at 9.1%, a 40-year high. But following a sharp upturn in the fall, monthly price rises have escalated to a range of 0.3% to 0.4% so far this year.
Despite a spike in goods prices in February, products including secondhand vehicles, furniture, and appliances have become more affordable as supply constraints caused by the pandemic have healed. However, partly due to the fact that pandemic-related wage hikes have only tapered down gradually as worker shortages have lessened, the cost of services like rent, auto insurance, and transportation cannot stop growing.
By the end of the year, core price hikes should reach 3.1%, far surpassing the 2% target set by the Fed, according to Barclays, which anticipates that monthly price growth would gradually slow down and reduce annual inflation to 3%.
In 2024, are interest rates likely to decrease?
In the last few weeks, Fed Chair Jerome Powell has stated that inflation is still moving toward the 2% objective “on a sometimes bumpy path,” and the price increase in the first two months of the year may have been an anomaly.
But given how well the job market and economy have been doing lately, the larger-than-expected increase in March might raise more concerns that interest rate reductions that are beneficial to the market will be delayed.
With the Fed reducing rates just twice this year, the futures market is now wagering that the first-rate drop will be postponed until September. In keeping with the median estimate provided by Fed policymakers last month, it had been projecting the first cut in June and three reductions overall in 2024.
A Capital Economics economist, Paul Ashworth, wrote in a note 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 data, according to Kathy Bostjancic, chief economist at Nationwide, “will undermine Fed officials’ confidence that inflation is on a sustainable course back to 2% and could push off rate reductions to next year.” Additionally, Kathy Bostjancic predicted that rate cuts will likely be postponed until early September.
The Federal Reserve has been raising its benchmark short-term rate since March 2022 in an effort to control inflation. After rising from near zero to a 22-year high of 5% to 5.25%, authorities have paused since July. A rise in interest rates tends to drive up the cost of borrowing for consumers and businesses alike.
How is the US stock market performing now?
The greater inflation rate caused stock prices to decline. The Dow Jones Industrial Average plummeted 0.84% and the S&P 500 dropped 0.73% as of 10:45 a.m. EDT as investors were more apprehensive that the anticipated interest rate reduction might not occur as soon as anticipated. Due to a decline in price, the yield on 10-year Treasury bonds—which are susceptible to inflation—went up to 3.1%.
A major concern in the upcoming presidential election is inflation. In a statement, President Joe Biden stated that even though inflation has decreased by more than 60% since its peak, more needs to be done to cut costs.
“Despite the fact that the cost of essential household items like milk and eggs has decreased compared to a year ago, the cost of housing and groceries remains excessively high,” stated Biden.
Why are gas prices going up again?
In March, gasoline prices increased by 1.7%, marking the second rise following four consecutive months of decreases. Russian crude oil supply has been limited by the war between Russia and Ukraine. Additionally, as growers transition to more costly summer blends and the spring driving season approaches, demand is increasing.
Will 2024 see a decrease in rent?
More than half of the monthly increase in overall prices was due to the cost of housing and gas combined.
March’s 0.4% increase in rent was the most recent in a string of sharp increases, but it was down significantly from the previous month. This caused the annual increase to drop from 5.8% to a still high 5.7%. Based on new contracts, economists predict a slowdown in rent rises; nevertheless, this has only slightly affected existing leases.
Some other services also continued to rise in price. Health care costs rose by 0.6%, auto insurance by 2.6%, and auto repairs by 1.7%. However, due to a decline in jet fuel prices, airfares fell by 0.4%.
Even more positive: the prices of certain commodities decreased: the price of appliances fell by 0.7%, used cars by 1.1%, and new cars by 0.2%. On the other hand, furniture costs grew by 0.3% and apparel by 0.7%.
Are food costs rising or falling?
For a second month in a row, grocery prices remained stable, bringing the annual increase to a still-moderate 1.2% and offering consumers ongoing respite from significant price increases throughout the pandemic.
Prices for bread decreased by 0.9%, breakfast cereal by 1.6%, and cookies by 1.2%.
However, proteins typically increased. In the midst of another avian flu outbreak, the price of raw ground beef rose by 0.7%, bacon by 0.9%, and eggs by 4.6%.