An eagerly awaited report Wednesday on consumer prices will show whether inflation is still easing, a trend the Federal Reserve will weigh in deciding when and by how much — or even whether — to cut interest rates this year
Key question before US reveals latest consumer prices: Is inflation cooling enough for the Fed?By CHRISTOPHER RUGABERAP Economics WriterThe Associated PressWASHINGTON
WASHINGTON (AP) — An eagerly awaited report Wednesday on consumer prices will show whether inflation is still easing, a trend the Federal Reserve will weigh in deciding when and by how much — or even whether — to cut interest rates this year.
The March inflation figures are expected to show an ever-so-slight cooling of inflation, which might keep the Fed on track to cut its benchmark rate three times this year, starting as early as June. But with inflation data having come in higher than expected in January and February, a third elevated reading could scramble the Fed’s plans and forestall some or all of those rate reductions.
The government’s inflation reports have assumed an unusually high profile this year in both the financial markets and the presidential election. Chair Jerome Powell has made clear that the Fed needs “greater confidence” that inflation is steadily falling back to the central bank’s 2% target before it can begin reducing borrowing costs.
Republican critics of President Joe Biden have sought to pin the blame for high prices on the president and use it as a cudgel to derail his re-election bid. Despite a healthy job market, a near-record-high stock market and a significant drop in inflation from its peak of 9.1%, many Americans blame Biden for the surge in consumer prices that began in 2021. Average prices are still far above where they stood before the pandemic.
Early this year, Wall Street traders had projected that the Fed would cut its key rate up to six or seven times in 2024. In March, Fed officials penciled in three cuts. But persistently high inflation readings in January and February — along with signs that economic growth remains healthy — have led several Fed officials to suggest that fewer rate cuts may occur this year.
Economists have forecast that Wednesday’s report will show that prices rose at a seasonally adjusted 0.3% from February to March, slightly below the previous month’s 0.4% increase, according to a survey of economists by FactSet. That would leave consumer costs 3.4% higher than they were a year ago.
Financial markets and economists will keep a particularly close eye on the March “core” inflation figures, which exclude volatile food and energy costs. Core prices typically provide a better sense of where inflation is headed. Economists have predicted that core prices also slowed to a 0.3% increase from February to March, down from 0.4% from January to February.
A rise in gas prices was a likely key source of last month’s inflation. The average national price of a gallon of gas rose about 5% to $3.50. Prices for services — everything from car insurance and hotel rooms to restaurant meals and entertainment — are also believed to have risen.
Rents and the cost of home ownership have also both surged since the pandemic. The cost to rent a new apartment has actually declined in most big cities — a result, in part, of a wave of new apartment buildings being completed. But the government tracks both new and existing rents, and the decline in newer rents is only slowly feeding into the government’s data.
Rents rose 5.8% in February from a year earlier, well above the 3% to 4% pace that was typical before the pandemic but far below a peak of 8.8% a year ago.
The costs of new and used vehicles, though, are believed to have dropped in March and are expected to hold down inflation in the months ahead. Cars and SUVs still cost much more than they did before the pandemic. But as automakers increase production and replenish dealer inventories, buyers are able to get some deals again.
Laura Rosner-Warburton, an economist at MacroPolicy Perspectives, said that only about 16% of new cars are now sold above the manufacturer’s recommended price, down from nearly half in July 2022.
“The conditions have really shifted in the new-vehicle market,” she said. “The supply has improved. I think that’s an area where we just haven’t seen much deflation at all, and we will.”
The costs of groceries, having skyrocketed in 2022 and early 2023, are rising much more slowly now. Food prices were up just 1% in February from a year earlier. Egg prices, though, may jump, with avian flu having re-emerged and forced egg producers to reduce the size of their flocks.
Hiring ramped up last month and the unemployment rate fell to a low 3.8% from 3.9%. A report on manufacturing also showed that factory output expanded after more than a year of contraction.
Such signs of economic vigor have also complicated the prospect of Fed rate cuts, which typically occur when the economy stumbles. With growth healthy, some economists have asked, why cut rates at all? A strong economy also means that the Fed’s policymakers can take their time to consider when and by how much to reduce borrowing costs for consumers and businesses.
At a news conference last month, Powell said that robust hiring, on its own, wouldn’t require the Fed to delay rate cuts. He noted that even though job gains were strong last year, inflation still tumbled thanks in large part to a surge of available workers, mostly from increased immigration.
“In and of itself, strong job growth is not a reason for us to be concerned about inflation,” the Fed chair said.
Some other policymakers, though, said that recent data had given them pause.
“It’s much too soon to think about cutting interest rates,” Lorie Logan, president of the Federal Reserve Bank of Dallas, said last week.
