Prices of goods and services in the United States rose a tenth in March from the previous month, but year-on-year
inflation
fell to 5%, from 6% in February, according to data released Wednesday by the Bureau of Labor Statistics.
A greengrocer in New York on February 1, 2023. Corbis via Getty Images
The
increase in the price of housing
was, by far, the one that contributed the most to inflation last month, but it was offset by cheaper
energy
(3.5%) and by the
slowdown in the cost of food
( those purchased by families for their homes fell three tenths).
However, excluding volatile food and gas costs,
core prices
rose 0.4% in March, after rising 0.5% in February.
This figure has barely changed since December.
The Federal Reserve (Fed) and many economists believe that these prices are a better measure of underlying inflation.
Rapidly rising prices in the vast service sector of the economy—from rents and restaurant meals to haircuts and auto insurance—keep core inflation high, at least for now.
From February to March, core prices are expected to have risen a substantial 0.4% for the third time in the last four months.
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This stubbornness will likely lead the Federal Reserve to raise its benchmark interest rate for the tenth time in a row when it meets in May.
Central bank officials have forecast that, after an additional quarter-point hike — which would bring its benchmark rate to about 5.1%, its highest level in 16 years — they will pause these increases, but keep its high rate for the remainder of the year.
When the Fed tightens credit to cool the economy and inflation, it typically causes interest rates on mortgages, auto loans, credit card loans, and many business loans to rise.
The risk is that ever-higher interest rates weaken the economy to the point of triggering a recession.
On Tuesday, the International Monetary Fund (IMF) warned that persistently high inflation around the world — and efforts by central banks, including the Federal Reserve, to combat it — are likely to slow global growth this year and next.
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"Inflation is much stronger than expected even a few months ago," wrote Pierre-Olivier Gourinchas, the IMF's chief economist, in his latest World Economic Outlook report.
Even so, there are signs that inflationary pressures are easing, which could mean a smaller increase in core prices in the coming months.
One unfortunate reason why inflation could ease is that economists expect growth to slow in the United States later this year, partly because turbulence in the banking sector could prompt banks to tighten lending.
The year-long streak of rate hikes by the Federal Reserve is also starting to cool a hot job market, with recent data showing companies are posting fewer job openings and pay gains have been slowing from low levels. historically high.
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"Should inflation turn out as expected, the Federal Reserve is unlikely to calm down," Bank of America economists said in a research note.
"However, the slowdown in other (economic) data should translate into downward pressure on inflation over time," they noted.
Even so, the Apartment List company, which tracks changes in new rental contracts in real time, shows that rents are growing at a rate of 2.6% compared to a year ago.
As more apartments readjust with those minor increases, government inflation data should show smoother increases in the coming months.
The Federal Reserve is also focused on the cost of services, which are rising at a historically rapid rate.
Central bank officials have said they believe rising wages, while good for workers, are contributing to those price rises.
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However, the March jobs report found that wage growth has slowed steadily over the past year.
Companies are advertising fewer jobs, and the number of Americans leaving their jobs to take new, mostly higher-paying jobs — a driver of higher wages — is declining.
A more worrisome trend is the possibility of banks slashing lending to conserve funds after two big banks collapsed last month, raising concerns about the health of the banking system in the United States and abroad.
Many small banks have lost their clients' deposits to large global entities considered too robust to fail.
The loss of those deposits will likely mean that these banks will lend less to businesses and individuals.
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Some small businesses say they are already having trouble getting loans, according to a survey by the National Federation of Independent Business.
The IMF said on Tuesday that the lending pullback could slow growth by almost half a percentage point over the next 12 months.
A slowdown in the economy could cool inflation and thus help the Federal Reserve meet its targets.
But the hit to the economy could prove bigger than expected.
At worst, it could mean a full-blown recession with the loss of millions of jobs.