US Inflation Slows to Two-Year Low, Fed May Still Raise Rates in May
US inflation has slowed to the lowest level in almost two years. However, the rise in core prices, which excludes the volatile costs of energy and food, may still put pressure on the Federal Reserve to go ahead with another interest rate increase in May.
The Bureau of Labor Statistics reported that the consumer price index for March increased by 5% YoY, a significant decline compared to the 6% in February and the lowest level since May 2021.
Meanwhile, core CPI rose by 5.6% YoY, following a 0.4% monthly rise. This indicates that the prices of certain goods and services are still elevated.
In March, several indexes experienced an increase, including shelter, airline fares, household furnishings and operations, new vehicles, and motor vehicle insurance. However, the indexes for medical care and used cars and trucks decreased over the same period.
This reading was slightly lower than the expected 5.7% estimated by a panel of 25 economists polled by Bloomberg.
The latest inflation data is crucial as the Federal Reserve prepares for its upcoming policy meeting in May. The March jobs report showed that the labor market remains strong, despite a drop in monthly job creation.
However, there is currently no consensus among Fed officials as to whether another quarter-point rate rise is necessary before the central bank can end its aggressive monetary policy campaign against high inflation.
While some officials support another rate increase, others have urged a cautious approach, including Austan Goolsbee, the President of the Chicago Fed and a voting member of this year’s policy-setting Federal Open Market Committee.