In the United States in February, consumer prices showed growth, the pace of which turned out to be the slowest in the last four months, against which a kind of respite is forming in anticipation of the impact of tariffs, characterized by many experts as a factor in increasing the cost of goods and services.
The consumer price index in the US rose 0.2% past month. The relevant information was published on Wednesday, March 12, by the United States Bureau of Labor Statistics. It is worth noting that in January, the mentioned indicator showed an increase of 0.5%.
Excluding the often volatile food and energy prices, the so-called core measure in the United States increased by 0.2% in February.
The Bureau of Labor Statistics said that almost half of the growth in the overall measure was due to shelter, but it still decelerated from the prior month.
Airfares fell by 4% in February. It is worth noting that this decrease is the largest since June. Recently, in the United States, some carriers have been warning about falling demand ahead.
Prices for new cars and gasoline also showed a downward dynamic in February. Grocery prices for the mentioned period remained virtually the same. At the same time, it is worth mentioning that this indicator showed a significant increase in January.
Car and medical insurance costs grew at a moderate pace.
The data released on Wednesday contains some arguments in favor of a more optimistic assessment of the prospects for the economic system of the United States. At the same time, there are also figures in this case that indicate that inflation, a counteraction to which has become the main focus of the Federal Reserve’s efforts in recent years, is back on a growth trajectory. Moreover, there is a high probability that the mentioned indicator will accelerate in the foreseeable future within the framework of the upward dynamic. In the relevant context, it is worth noting that tariffs on imported goods, which were imposed by the President of the United States Donald Trump, will most likely become a factor in increasing prices for products in many categories, including food and clothing. It is also important that some countries have already decided to take similar retaliatory measures against the US. Many experts believe that the tariff policy of the Donald Trump administration will accelerate inflation. The consequences of Washington’s corresponding actions in the form of rising prices are likely to become something like a test of strength for the United States economic system. Also, the implementation of the specified scenario, which is highly realistic, will be a source of increased financial burden on US consumers, whose personal budgets have already faced pressure from such a process as the growing cost of living in recent years.
Last week, in his address to Congress, Donald Trump described the price increase, which is expected against the background of tightening Washington’s tariff policy, as a little disturbance. In his opinion, the United States should be able to cope with this challenge.
It’s worth noting that the uncertainty related to the trade policy of the Donald Trump administration has already become a source of negative consequences that correspond to such a concept as an accomplished fact and do not belong to the category of potential probabilities or theoretical possibilities. In the relevant context, it is worth mentioning the meltdown of stock markets. Against this background, fears have increased that a recession scenario will be implemented in the foreseeable future in the United States economic system.
The Fed is currently pursuing a kind of wait-and-see approach. In a practical sense, this means that the central bank of the United States refrains from making quick decisions and actions in the context of making any changes to monetary policy. The US financial regulator expects more clarity on the activities of the Donald Trump administration and the trajectory of inflation. According to media reports, citing analysts, expectations are currently dominating that officials of the central bank of the United States will decide at a monetary policy meeting next week to keep interest rates at the same level. This is generally a fair assumption, as it is obvious that the Fed has not yet reached the mentioned clarity. At the same time, it is impossible to exclude the possibility that, against the background of numerous alarming forecasts regarding the downturn in the United States economic system, officials of the country’s central bank will decide on lowering the cost of borrowing earlier than originally expected.
Kay Haigh, global co-head of fixed income and liquidity solutions at Goldman Sachs Asset Management, said in a note that the combination of easing inflationary pressures and growing risks of a slowdown in economic growth in the US indicates that the Fed is approaching a continuation of the monetary policy easing cycle.
Treasury bond yields and the dollar showed gains as markets turned to the prospect of an escalating trade war. The S&P 500 opened higher.
Economists have been looking at the report released on Wednesday to form an idea of the impact on consumer prices of the Donald Trump administration’s tariffs, which began last month with levies on all goods imported from China and then spread to some categories of products shipped from Canada and Mexico. At the same time, prices for core goods in the United States rose by only 0.2% in February. Moreover, in categories such as furnishings, toys, and televisions, the mentioned indicator remained unchanged.
Shelter prices climbed 0.3% in February. It is worth noting that this is the largest category within services. In January, this indicator showed an increase of 0.4%. Owners’ equivalent rent and rent of primary residence, subsets of shelter, rose by 0.3% in February.
Except for housing and energy, prices for services showed an increase of 0.2% last month. It is worth noting that in January, this indicator grew at the fastest pace in a year. Central bankers have repeatedly emphasized the importance of looking at the mentioned reading when assessing the overall trajectory of inflation but at the same time, they compute it based on a separate index.
The measure, known as the personal consumption expenditures price index, doesn’t put as much weight on shelter as the consumer price index, which helps explain why it is trending closer to the Fed’s 2% inflation target.
The government’s producers price report, which will be published on Thursday, March 13, will allow economists to form an idea of additional categories that feed directly into the personal consumption expenditures price index.
One of the components of the consumer price index, which plays an important role in the formation of the PCE price basket, is food away from home, the cost of which increased in February at the fastest pace since June. Another relevant category is computer software and accessories. Prices for these products showed a significant increase in February.
Policymakers are also paying close attention to wage growth. The dynamic of this indicator can help inform expectations regarding consumer spending, the main engine of the economy. A separate report was also published on Wednesday, which combines the inflation figures with recent wage data. The data contained in this report indicates that real hourly earnings increased by 1.2% in February. The mentioned indicator’s growth rate is the highest in the last three months.
Fed officials are also paying attention to inflation expectations, especially in the long term. The corresponding indicators often have an impact on wages and prices. Consumers surveyed by the University of Michigan last month expected prices to show the fastest growth rates since 1995 in the next five to ten years. At the same time, the pool by the New York Fed demonstrated that in February, the inflation outlook for three and five years ahead was stable.
Stephen Juneau, a US economist at Bank of America Securities, said that the longer inflation runs above the Fed’s target, the greater the chance that expectations de-anchor to the upside.
As we have reported earlier, China’s Inflation Declines Below Zero.
