Another Decline In Inflation In The US Is Expected
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US CPI data will be a key economic event that steers market movements.
Previous data
Inflation rose by 0.5% in January after rising by 0.1% in December, according to the Consumer Price Index published on Tuesday.
The CPI increased by 6.4% compared to the same period in 2022. Both figures were higher than expected.
Super-basic services inflation, which is central to the Fed and excludes food, energy and shelter, rose 0.2% in a month and was 4% higher than a year ago.
Inflation picked up in early 2023 as rising housing, gas and fuel prices took a toll on consumers.
Rising shelter costs accounted for about half of the monthly increase, the Bureau of Labor Statistics said in a report. This component accounts for more than a third of the index and was up 0.7% over the month and was 7.9% higher than a year ago.
Energy also made a significant contribution, with 2% and 8.7% respectively, while food costs increased by 0.5% and 10.1% respectively.
Rising prices meant a loss of workers' real wages. According to a separate BLS report, which adjusts wages for inflation, average hourly earnings fell 0.2% over the month and fell 1.8% from a year ago.
While price increases have been declining in recent months, January data shows that inflation continues to be a force in the US economy, which is threatened with recession this year.
Forecast
As for February's inflation performance, inflation is expected to decline once again to 6.0% (Y/Y) and to 0.4% (M/M). Core inflation is expected to remain unchanged.
Other important data
The long-awaited US non-farm payrolls report for February showed that US employers created 311,000 jobs. new jobs compared to the forecast 205 thousand.
While the headline figures were impressive, showing that the US labor market is still strong, the unemployment rate rose to 3.6% vs. expected 3.40% and average hourly wage at 4.6% y/y vs. forecast 4.70% y/y.
Recession and the Fed
According to TS Lombard chief economist Steven Blitz, the US Federal Reserve cannot break the cycle of interest rate hikes until the country enters a recession. The Fed is unclear about the ceiling for interest rate hikes in the absence of such an economic slowdown.
Powell told lawmakers on Tuesday that stronger-than-expected economic data in recent weeks suggested "the final level of interest rates is likely to be higher than previously projected" as the central bank looks to bring inflation back to earth.
The next meeting of the Federal Open Market Committee on monetary policy, on March 21 and 22, will be crucial for global equity markets, with investors closely watching whether policy makers decide to raise interest rates by 25 or 50 basis points.
Market expectations for the final Fed funds rate were around 5.1% in December, but they have been rising steadily.
When inflation-adjusted GDP fell in the first two quarters of 2022, a huge number of economists and policymakers announced that a recession had arrived. In fact, none of that was true. The onset of a recession does not depend on a single factor, real GDP, but on reading a series of economic statistics simultaneously. In 2022, the economy has not experienced a single month where all of these economic indicators have fallen, much less for at least the next few months needed to meet the definition of a recession.
Over the past year or so, a bunch of economists have repeatedly announced that a recession is just around the corner, based in part on reading economic indicators from the past before recessions, and what they saw as an almost inevitable decline, given the recent similarities with these past relationships.
Clearly, the economy is under some downward pressure due to the Federal Reserve's increase in the federal funds rate target, but the US economy may well avoid recession.
Source: investing.com
