Focus is on core inflation
US inflation rate continues to fall – but no all-clear
4/12/2023 3:37 p.m
It is true that the rate of inflation in the USA eased significantly in March. But in view of high core inflation, this cannot be seen as a real all-clear. The currency watchdogs in the USA will continue to face difficult interest rate decisions.
Inflation in the US eased significantly in March. The inflation rate for goods and services fell from six to five percent on a monthly basis, as announced by the Department of Labor in Washington. Experts had expected 5.2 percent. The US Federal Reserve can celebrate the abating of the wave of inflation after a series of interest rate hikes as a stage victory. But it is struggling with stubbornly high core inflation, which excludes volatile energy and food prices. This rose from 5.5 to 5.6 percent in March.
This development is seen as an alarm signal, since the upward trend in prices has evidently already spread to large areas of the economy and is threatening to solidify. The US monetary authorities headed by Fed Chairman Jerome Powell must now decide whether to raise interest rates further at the beginning of May or whether to take a break out of consideration for the economy and possible recession risks. The central bank has pushed interest rates from near zero to a range of 4.75 to 5.00 percent in a year-to-date effort to stem high inflation and cool a hot labor market.
In a first reaction, VP Bank said that the “rise in the core inflation rate is spoiling the inflation picture. Inflation is not simply disappearing into thin air, it is proving to be tenacious.” But be confident. The supply chain problem has calmed down, which takes pressure off prices. In addition, rents should rise more slowly in the coming months.
Helaba is also focusing on core inflation, which is “still uncomfortably high”. This would argue for a further rate hike. Because of the banking crisis and the temporary turbulence on the financial markets, however, restraint is recommended.
Real incomes in the US fell 0.1 percent month-on-month in March. According to the US Department of Labor, a decline of 0.4 percent was recorded in February. The average weekly income in March was $378.18, adjusted for seasonal effects and inflation, compared to $378.46 in the previous month.