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Recent Inflation Numbers May Indicate A Further Steady Improvement

Business/EconomyRecent Inflation Numbers May Indicate A Further Steady Improvement

The most recent government report on consumer price hikes, due out on Wednesday, is likely to highlight the persistence of high inflation once more.
The prices of some essential items, including gasoline, furniture, and new cars, might be rising more gradually or even declining altogether in the March inflation data, suggesting that the situation may be improving. According to a study by the data provider FactSet, experts anticipate that inflation will have dramatically decreased from 6% in February to 5.2% in March, compared to a year ago.

But removing volatile prices for food and gas, it is believed that so-called core prices have increased by 5.6% from a year ago, up from a 5.5% increase in February. That figure has changed slightly since December. Core prices are viewed by the Federal Reserve and many private economists as a more accurate indicator of underlying inflation.

Core inflation is currently strong due to quick price increases in the economy’s sizable service sector, which includes everything from rent and restaurant meals to haircuts and vehicle insurance. For the third time in the previous four months, a significant 0.4% increase in core prices is anticipated from February to March.

When the Fed meets in May, it’s likely that it will decide to raise its benchmark interest rate for a record-breaking tenth time in a row. According to Fed officials, they plan to stop raising their benchmark rate after one more quarter-point increase, which would bring it to roughly 5.1%, the highest level in 16 years, but keep it there throughout this year.

Mortgage, vehicle, credit card, and many business loan rates often rise when the Fed restricts credit in an effort to reduce the economy’s temperature and inflation. There is a chance that the economy could become so fragile as to enter a recession as a result of rising borrowing costs.

The 190-nation International Monetary Fund issued a warning on Tuesday, predicting that efforts by central banks, including the Fed, to combat persistently high inflation will likely weaken global growth this year and next.

According to Pierre-Olivier Gourinchas, the IMF’s top economist, “inflation is much stickier than anticipated even a few months ago.”

Even so, there are signs that inflation pressures are receding, which could indicate smaller core price increases in the months ahead. The fact that experts anticipate economic GDP in the United States will slow later this year, in part because of the banking sector’s unrest that may lead banks to curtail lending, is one unpleasant reason inflation could decrease.

With recent data showing that businesses are advertising fewer openings and that wage growth has been slowing from historically elevated levels, the Fed’s year-long streak of rate hikes is also beginning to cool a hot labor market.

Bank of America economists stated in a research note that “the Fed is unlikely to take much comfort” should inflation turn out to be as expected. The downturn in other (economic) statistics should, however, gradually exert downward pressure on inflation.

The expense of housing, including rent, is likely the main factor driving core inflation. The numbers provided by the government show that they are increasing at a rate of roughly 9% every year.

However, according to Apartment List, which monitors changes in new leases in real-time, rentals are increasing at a 2.6% rate compared to a year ago. The government’s inflation data likely reflect softer gains in the upcoming months when more apartments reset with those modest increases.

The cost of services, which is increasing at historically high rates, is another area of intense emphasis for the Fed. Although raising wages is beneficial for workers, central bank officials believe it is also causing price increases.

However, the March jobs report released last week revealed that salary growth has been gradually slowing over the previous year. Businesses are advertising fewer available positions, and the number of Americans leaving their employment to accept new, typically higher-paying jobs is declining. Higher pay is a major driver of this trend.

A more concerning trend is the potential for banks to drastically cut back on lending in order to conserve capital in the wake of the failure of two sizable banks last month, which sparked unrest both domestically and abroad. Large international banks that are thought to be too big to fail have stolen customer deposits from many smaller banks. The loss of those deposits will probably result in fewer loans being made to businesses and people by those institutions.

According to a poll by the National Federation for Independent Business, some small businesses claim they are already having problems acquiring financing. The IMF stated Tuesday that pullbacks in lending might weaken growth by roughly a half-percentage point over the next 12 months.

The Fed would be able to accomplish its goals if the economy slowed down, which would assist to reduce inflation. However, the economic hit might end up being more severe than anticipated. In the worst case, it might result in a severe recession and the loss of millions of jobs.

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