Calay News
The US Personal Consumption Expenditure (PCE) price index released by the Commerce Department shows that 12-month inflation stood at 4.2% in March, thanks to falling energy prices. Compared to February, the 12-month PCE corrected slightly to 5.1%. Price increases also moderated by 0.1% month-on-month, in line with analysts’ expectations. However, core inflation, which excludes volatile food and energy prices, still outpaced headline inflation and stood at 4.6% on a year-over-year basis, down from 4.7% in the previous month.
Core inflation on the month-to-month measure was 0.3%, in line with expectations. HFE Chief Economist Rubeela Farooqi noted that core inflation moderated modestly but remains well above the Fed’s target, meaning that last month’s results are insufficient to expect the institution to raise interest rates again.
Although prices were previously driven by external shocks and their effects on commodities, particularly oil and food, this is no longer the case. Energy prices fell by 10% in March, and food prices rose by 8% versus 10% in February. Inflation is now concentrated in services, which rose 5.5%, meaning that the Fed could raise its benchmark rates again, which are currently in a range of 4.75% to 5%. The rate hike could be 0.25 percentage points.
With inflation now below the applied rates, the Fed enters new territory, that of real tightening, with an impact that could be even greater on the economy. Although the labor market remains strong with an unemployment rate of 3.5%, the rising cost of money is being felt. Most analysts expect a more difficult year-end for the US, with weak growth or even a short recession due to tighter credit conditions.
