Inflation continues to slow in the United States, and fell in February to its lowest level for almost a year and a half, but the Fed, responsible for combating this rise in prices, is now under pressure with the bankruptcy of the SVB bank.
The rise in consumer prices stood at 6.0% year on year in February, as expected, against 6.4% in January, according to the CPI index published on Tuesday by the Labor Department.
This is its lowest level since September 2021, and its eighth month of slowdown in a row, after a peak of 9.1% in June. In just one month, inflation also slowed to 0.4% from 0.5%, again in line with analysts’ expectations, after rebounding in January.
CPI inflation rose as expected, but core inflation came in stronger than expected, said HFE economist Rubeela Farooqi. Indeed, so-called core inflation, which excludes food and energy prices, rose again over one month, 0.5% against 0.4%. Over one year, however, it slowed to 5.5%, its lowest level since December 2021.
Housing prices are those that continue to climb the most, representing more than 70% of the increase over one month, details the Department of Labor in its press release.
Food, leisure and furniture also contribute to this still high inflation.
Good news however, energy prices, which had soared in the spring of 2022 due to the war in Ukraine, continue to fall, and are down 0.6% compared to January, but up 5.2% on a year.
Bankruptcy of SVB
It is the American central bank (Fed) which is responsible for curbing this inflation, which, despite this new slowdown, remains very high.
The Fed favors another measure of inflation, the PCE index, which it wants to bring back to around 2% but was on the rise again in January, to 5.4% over one year.
Its main tool is to raise its rates, which increases the cost of credit, in order to encourage households to consume less. This should ultimately ease the pressure on prices.
Fed Chairman Jerome Powell warned just a week ago that the institution could tighten its monetary policy more than expected, due to this excessively high inflation, driven by unabated consumption and a market still tight employment with a persistent lack of workers.
But the bankruptcy of the Californian bank SVB and the turbulence in the banking sector, caused in part by the sharp rate hikes decided by the Fed over the past year, could change the situation.
The markets were expecting the Fed to decide, at its next meeting on March 21 and 22, on a sharp hike in rates, by half a percentage point, even starting up again compared to the previous meeting.
They would no longer be surprised if the Fed finally decides not to raise its main key rate at all.
The inflation figures plead, according to Rubeela Farooqi, for a modest rise in rates, of a quarter of a percentage point, as at the previous meeting.
However, the decision will ultimately depend not only on economic data, but also on financial stability concerns, she said.