Economy

US inflation eased to lowest level in nearly two years in March

Uptick in core CPI keeps pressure on Federal Reserve to push ahead with another rate rise in May

A rise in US core inflation means another interest rate rise may be on the cards despite the headline inflation rate hitting a two-year low. Photograph: T.J. Kirkpatrick/The New York Times
A rise in US core inflation means another interest rate rise may be on the cards despite the headline inflation rate hitting a two-year low. Photograph: T.J. Kirkpatrick/The New York Times
Colby Smith
Wed Apr 12 2023 - 14:12

US inflation eased last month to its lowest level in nearly two years but an uptick in core prices will keep pressure on the Federal Reserve to press ahead with another interest rate increase in May.

The consumer price index for March rose by 5 per cent year-on-year, according to data published by the US bureau of labor statistics on Wednesday. That marks a significant deceleration compared with the 6 per cent recorded in February as well as the lowest level since May 2021. On a monthly basis, consumer prices increased just 0.1 per cent, shy of economists’ forecasts.

However, core CPI, which strips out volatile energy and food costs, rose by 5.6 per cent year-on-year following a 0.4 per cent monthly jump, suggesting that price pressures for some goods and services are still elevated.

The latest inflation data is one of the most important economic releases in advance of the Fed’s next policy meeting in early May. It comes after the March jobs report, released on Friday, showed the labour market is still strong despite a decline in monthly job creation.

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So far, Fed officials do not yet appear to have forged a consensus over whether another quarter-point rate rise is necessary before the central bank can call time on its historically aggressive monetary policy campaign to battle high inflation. Some officials believe that a credit crunch in the wake of several recent US bank failures could negate the need for another increase.

Last month, most officials backed an additional increase. No cuts are forecast until 2024.

Those who have indicated support for another rate rise argue that inflation is still far too high and the economy has repeatedly defied expectations of a marked slowdown. They also argue that credit conditions may not tighten sufficiently following the failures of Silicon Valley Bank and other lenders to enable the Fed to pause at its next meeting.

However some officials have urged a cautious approach, including Austan Goolsbee, president of the Chicago Fed and a voting member of this year’s policy-setting Federal Open Market Committee. – Copyright The Financial Times Limited 2023

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