Gas prices listed at a gas station on March 12, 2024 in Chicago, Illinois.
Scott Olson | beautiful images
A closely watched Labor Department report on Wednesday is expected to show little progress has been made in the fight to reduce inflation.
If so, it would be bad news for consumers, market participants and Federal Reserve officials, who are hoping prices rise slowly enough to begin gradually cutting interest rates in Last year.
The consumer price index, which measures costs for a diverse basket of goods and services across the $27.4 trillion U.S. economy, is expected to rise 0.3% for the whole measure. All items as well as the core measure exclude volatile foods. and energy.
On a 12-month basis, inflation rates will be at 3.4% and 3.7%, respectively, with the headline rate up 0.2 percentage points from February, down just 0.1 percentage points for with the base rate and both remain far short of the central bank's 2% target.
“We haven't gotten there fast enough or convincingly enough, and I think that's what this report will show,” said Dan North, senior economist at Allianz Trade North America.
The report will be released at 8:30 a.m. ET.
Progress but not enough
North said he expected Fed officials to view the report the same way, backing up comments they have been making for weeks that they need more evidence to show. Inflation is on its way back convincingly to 2% before a rate cut can occur.
“Moving convincingly to 2% doesn't just mean hitting 2% in a month,” North said. It means achieving 2% or less for many consecutive months.” “We're a long way from that and that's probably what will happen tomorrow.”
There is no doubt that inflation has dropped significantly since peak is over 9% in June 2022. The Fed made 11 rate hikes from March 2022 to July 2023 totaling 5.25 percentage points to the benchmark overnight borrowing rate known as the federal funds.
But progress has slowed over the past few months. In fact, the headline CPI has barely budged since the Fed stopped raising interest rates, although the core index, which the Fed considers a better barometer of long-term trends, has fallen about a percentage point. .
While the Fed tracks the CPI and other indexes, it focuses primarily on the Commerce Department's personal consumption expenditures index, sometimes called the PCE deflator. It shows Headline inflation at 2.5% and core rate at 2.8% in February.
For their part, the market is increasingly worried about inflation and how it will affect Fed policy. After posting big gains at the start of the year, stocks have pulled back over the past week or so, which has seen strong fluctuations in the market as investors try to overcome conflicting signals.
Earlier this year, traders in the federal funds futures market were pricing in the possibility that the central bank would begin cutting interest rates in March and make as many as seven cuts before the end of 2024. Price The latest suggests that cuts will not happen. starting until at least June and no more than three total, assuming a one-quarter percentage point increase, according to CME Group FedWatch calculate.
“I don't see a lot of things here that will magically move things the way they want,” North said.
What to see
There will be several key areas to watch in Wednesday's report.
In addition to the headline numbers, trends in categories such as accommodation, airfares and transport prices will also be important. These regions have played important roles in the current economic cycle, and movements in either direction could suggest longer-term trends.
Economists at Goldman Sachs expect an outright decline in air travel-related items as well as vehicle sticker prices, and see a smaller increase in shelter costs, accounting for about 1 /3 CPI proportion. However, a New York Fed survey released Monday showed expectations for a sharp rise in rental costs next year, which is bad news for policymakers, who often see decelerating housing costs as the foundation of their disinflation thesis.
Similarly, the National Federation of Independent Business' March survey, released Tuesday, showed small businesses' confidence in their abilities. the lowest level in more than 11 yearswith owners citing inflation as their top concern.
“Inflation is cumulative and that is why prices remain high,” North said. “People still can't believe the price is so high.”
Gasoline prices could also play a key role in the CPI release after rising 3.8% in February. While the gasoline index has been relatively flat over the past two years, it is still up more than 70% since April 2020, when the brief Covid recession ended. Food increased about 23% during the same period.
