Inflation falls in March in the United States for the ninth consecutive month, to 5%

Data released Wednesday by the US Bureau of Labor Statistics tell two different stories.

One of those stories invites optimism: headline inflation falls for the ninth consecutive month, it does so strongly, from 6% in February to 5.0% in March, its lowest level since May 2021. The other, rather calls for caution: underlying inflation is entrenched, rising one tenth to 5.6% and already exceeding the general rate, so that the culprits for the price increase are no longer so much food and energy as the rest of the products and services.

Inflation reached 9.1% in June of last year, its highest level in four decades, after a vertiginous escalation in which the purchase bill at the supermarket and the gasoline pump gave the biggest scares to consumers. consumers.

Rising prices eroded the popularity of President Joe Biden, who now enthusiastically celebrates every upgrade.

Gasoline began to take a breather in the second half of last year and at the beginning of this year it was already getting cheaper in annual terms.

In March it fell 17% year-on-year.

Food items have continued to rise strongly for longer and in the last 12 months they have become even more expensive by 8.5%.

And, what worries the Federal Reserve the most, the price increases have been spreading to all kinds of products and services.

In March, year-on-year inflation fell from 6% to 5%, as prices rose only 0.1% in that month, compared to 1% in March last year.

Core inflation, on the other hand, has risen to 5.6% year-on-year.

“Obviously, this is a short-term setback for the Federal Reserve.

However, inflation was never expected to slow in a straight line, and despite this report, we expect inflation to continue to decline throughout the year, ending around 3-3.5%,” said Tiffany Wilding. , North America economist at PIMCO, who anticipated such a rebound in core inflation.

So far, the feared price-wage spiral has not occurred, but the longer inflation remains so above the 2% target, the greater the risk that it will become entrenched and that the so-called second-round effects will make the fight more difficult against price increases.

Taken as a whole, the figures published this Tuesday do not suggest that the task of containing inflation is finished.

If they are also combined with the vigorous evolution of the labor market, they would lead one to think that the Federal Reserve will raise interest rates again to cool demand and, with it, take pressure off prices.

Of course, after the financial turmoil caused by the fall of Silicon Valley Bank and Signature Bank, uncertainty about the evolution of monetary policy has increased.

In the press conference after the last meeting of his monetary policy committee, the president of the Federal Reserve, Jerome Powell, left the door open for a pause in rate hikes at the meeting on the next 2 and 3 days of May.

The statement from the central bank modified the way of referring to the next movements of monetary policy.

Where he spoke of additional “rolling increases” in rates being required, he changed the wording, to say that he “anticipates that some additional monetary policy tightening may be necessary”.

The Fed chairman clarified that the keywords were "could" and "some," as opposed to "rolling increases" that were taken for granted.

At the same time, Powell recognized the instability of the banks and the flight of deposits in some of them can tighten credit conditions as if it were another rise in interest rates.

But financial tensions seem to have calmed down somewhat quickly after the extraordinary measures taken by the authorities, raising the possibility of further rises in the price of money.

“We think that the strong employment report, the aggressive tone of the latest statements from the Federal Reserve and our expectations for a firm CPI point to a further rate hike in May, unless there is another episode of stress in the markets” , indicated this Tuesday Wilding, of PIMCO.

Along with the aggressive tone of some members of the Federal Reserve, there have also been others who have called for "prudence and caution" when raising rates, especially since the full effects of the tightening applied so far have not yet been felt.

In one year, the central bank has undertaken the most aggressive interest rate hikes since the early 1980s.

The cycle of increases began in the meeting held in March last year, with a rise of 25 basis points (0.25 percentage points).

Then came a 50 basis point hike, then four consecutive 75 basis point hikes, until the Fed slowed down with a 50 basis point hike in December, another 25 on February 1, and the final 25 basis point hike. on March 22, to the level of 4.75%-5%, the highest since 2007.

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