US Fed’s favoured inflation measure accelerates in March

Nevin Al Sukari - Sana'a - The US central bank’s favoured measure of inflation accelerated last month, according to government data published today, pushing back the chances of interest rate cuts this summer.

WASHINGTON, April 26 — The US central bank’s favoured measure of inflation accelerated last month, according to government data published today, pushing back the chances of interest rate cuts this summer.

The hotter print is likely to cement the view that inflation, while down sharply since 2022, remains a challenge, keeping rates on pause at their current elevated levels for the time being.

It also complicates US president Joe Biden’s re-election campaign, as the Democratic incumbent seeks to convince still-sceptical consumers that the economy is heading in the right direction ahead of November’s vote.

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The personal consumption expenditures (PCE) price index rose at an annual rate of 2.7 per cent in March, up 0.2 percentage points from a month earlier, the Commerce Department said in a statement.

This was above the median forecast of 2.6 per cent in a survey of economists conducted by Dow Jones Newswires and The Wall Street Journal.

Much of the overall annual rise came from the services sector, which increased at an annual rate of 4.0 per cent.

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Among the more volatile items, energy prices rose by 2.6 per cent from a year ago, while food prices were up 1.5 per cent.

Recent inflation and growth data “suggest officials will maintain a patient stance on policy, keeping the funds rate restrictive for longer,” High Frequency Economics chief US economist Rubeela Farooqi wrote in a note to clients.

‘Core’ inflation remains elevated

On a monthly basis, PCE inflation rose by 0.3 per cent, in line with the figure from February, the Commerce Department said.

The closely watched “core” measure of inflation, which strips out food and energy costs, rose at an annual rate of 2.8 per cent in March, unchanged from a month earlier.

The March data reaffirm the concern among economists that inflation is proving to be more stubborn than previously thought—complicating the Federal Reserve’s fight to bring it down firmly to its long-term target of two per cent through interest rate hikes.

For much of last year, its policy appeared to be working: Inflation came down sharply, even as economic growth and the labor market continued to show signs of resilience.

But three months of higher inflation data since the start of the year suggest that fight is not over yet.

“The recent data have clearly not given us greater confidence, and instead indicate that it’s likely to take longer than expected to achieve that confidence,” Fed Chair Jerome Powell told an event in Washington earlier this month.

Personal savings dwindling

As recently as December, futures traders were expecting interest rate cuts to come as early as March, according to data from CME Group.

They now assign a probability of more than 60 per cent that the first of the Fed’s three expected cuts this year will arrive by mid-September.

“At next week’s May FOMC meeting, we think the Fed will take a wait-and-see approach to cuts while giving policy more time to work,” Bank of America wrote in a note to clients on Friday, referring to the Fed’s rate-setting Federal open Market Committee.

The data published Friday also show that personal income accelerated last month, rising by 0.5 per cent in March from a month earlier, the Commerce Department said.

In a sign that consumers are dipping further into their savings to fund their spending habits, personal savings as a percentage of disposable income fell to 3.2 per cent in March from 3.6 per cent in February. — AFP