March 12, 2024

US Inflation: A Closer Look at the Current Economic Scenario

By Patrick Boughton

The economic landscape of the United States is witnessing a significant shift, with inflation at the forefront of the discussion. The recent increase in the US inflation rate is making headlines in finance news globally, and it’s critical to delve into this issue to understand its implications. 

The Rise in Inflation Rates 

The inflation rate in the US escalated in February, primarily driven by higher prices for petrol and housing. The annual rate marked an increase from 3.1% in January to 3.2% in February. 

Airfare, car insurance, and clothing are among the elements that contributed to the monthly increase. In contrast, grocery prices, which have surged in recent years, causing public discontent, remained unchanged. 

The Federal Reserve, the US’s central bank, is in a key position to influence this situation. The bank, which has been closely monitoring the inflation rates, is expected to start reversing its course and introduce interest rate cuts this year. 

However, initial calls for the first cut to be introduced as early as March have been reconsidered, as recent inflation readings show progress stalling. Many now predict the Federal Reserve’s first move to occur in June or later. 

The Impact of Seasonal Adjustments 

Analysts have indicated that these figures have been impacted by seasonal price adjustments related to the start of the year. Despite this factor, the overall report is likely to strengthen the Federal Reserve’s resolve to proceed with caution. 

“This print is just about enough to keep rate cut expectations for June stable – but another print like this next month would push the first cut into the second half of the year, putting the soft landing narrative in question,” said Seema Shah, chief global strategist at Principal Asset Management. 

The US economy has remained resilient in the face of inflation and higher borrowing costs. However, ongoing price increases could potentially undermine President Joe Biden’s ability to promote his policies to voters and pose risks to the economy in the future.

A Breakdown of Costs 

The Labor Department reported that petrol prices rose by 3.8% between January and February, while airline fares saw a 3.6% increase. On the other hand, grocery prices remained relatively stable over the month, with higher prices for items like cereal, bread, and eggs being offset by lower meat and fresh fruit costs. 

Housing costs, which rose by 0.4% over the month and 5.7% from February 2023, play a significant role in US inflation calculations. They account for approximately a third of the consumer price index. The department’s inflation measure considers both rental rates and “owners’ equivalent” rent, an estimate of what a homeowner would have to pay to rent their own property. If housing costs are excluded, the inflation rate in the US is considerably lower than the official rate – with prices up about 1.8% compared with February 2023. 

Economic Outlook

Joe Brusuelas, chief economist at consultancy firm RSM, who last year had foreseen housing costs as a continuous inflation driver, now predicts a change in this trend in the coming months. 

“If you’re looking at the US from externally, you should be able to begin to make some judgment that the US is rapidly approaching the point at which we can say we’ve obtained price stability,” he said. 

However, he added that we’re not quite there yet to the point where the Federal Reserve’s ready to declare the all-clear. 

In light of the current economic situation, it’s clear that the issue of inflation in the US is a complex one, requiring a nuanced approach. As the Federal Reserve navigates the ‘last mile’ challenge, all eyes will be on the US economy, gauging its trajectory in the months to come. 

 


US inflation edges up as Fed debates interest rate cuts

US inflation rise to 3.2% highlights ‘last mile’ challenge for Federal Reserve

Image Source: Photo by Tumisu on Pixabay

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Meet the Author

Patrick Boughton

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