Finance & Economics

March Inflation Data to Prolong Expectations Fed Rate-Cut

On Wednesday, April 10, official data on consumer prices in the country in March will be released in the United States, which most likely will not become a source of a more unambiguous and reliable preliminary understanding of when the Federal Reserve System will begin implementing the policy of cutting interest rates.

March Inflation Data to Prolong Expectations Fed Rate-Cut

The expert community is nowadays dominated by the opinion that inflation in the US for March will show a slowdown after a moderate increase in the corresponding indicator at the beginning of the current year.

Economists surveyed by the media predict that the consumer price index, which does not take into account the cost of food and energy, will increase by 0.3% over the last month. It is worth noting that this figure is the main indicator of underlying inflation.

If the forecast of economists surveyed by the media comes true, there will be a decrease in the consumer price index compared to the results for January and February 2024. At the same time, this potentially possible March indicator is likely not to become a factor that will eliminate the concerns of officials of the central bank of the United States, who are focused on a more significant slowdown in the growth of the cost of goods and services.

There is also a widespread expectation among analysts that last month’s consumer price index data will be evidence that rental inflation figures are resuming a downward trend after an unexpected acceleration recorded at the beginning of the current year. It is worth noting that the mentioned indicators are one of the main components of the specified index.

Data on the dynamic prices in the used car and airline ticket sector may also have a significant impact on the final March result.

The information that will be published on Wednesday may be some kind of evidence that the increase in the consumer price index in early 2024 was not the beginning of a new process in the context of the dynamic of the economic system of the United States, but a deviation from the norm. If the corresponding assumption is confirmed by official data, it will mean that Fed Chairman Jerome Powell and some officials of the Federal Open Market Committee (FOMC) are right, who arguing that disinflation is most likely an ongoing tendency. This was stated by economists Anna Wong and Stuart Paul. Proponents of the specified point of view are also convinced that considering the possibility of lowering the cost of borrowing in the United States would be appropriate in the middle of the current year.

According to futures contracts, investors assume that the process of gradually cutting interest rates is likely to begin in June. This point of view is consistent with the position of Jerome Powell and some FOMC officials.

Rents will be of particular importance in the consumer price index report. The equivalent rent of the owners and the rent of the primary residence are the main components of the mentioned index. The unexpected acceleration of the corresponding indicators in January disrupted the steady downward tendency that had been observed over the past year. The subsequent slowdown recorded in February was not enough for the weighted average of the two components to be lower than the December figure.

It is widely believed among experts that rent inflation in the consumer price index will be on a downward trajectory during the current year. This point of view is based on trends in main indicators, including rents in the private sector under new leases.

In the second half of 2023, the overall consumer price index in the United States showed a rapid decline, supported by falling goods prices. In this case, one of the most significant impact factors was the dynamic of the cost of used cars. This indicator became a catalyst for changes in the so-called core goods basket, which rose in price by 54% between February 2020 and February 2022. In January 2024, this figure fell by 3.4%. A month later, an increase of 0.5% was recorded.

Goldman Sachs economists Manuel Abecasis and Spencer Hill expect the March data to show a 0.5% drop in the cost of used cars. Their forecast for changes in prices for new vehicles provides for a decrease in the corresponding indicator by 0.3%. These expectations are based on the fact that auction prices for used cars are falling and the growth of incentive measures for dealers. Also, the mentioned economists predict that during the current year, used cars in the United States will fall in price by 8.2%. Also, in their opinion, the average cost for new vehicles will decline by 1.4% over time. Economists say that currently in the US there is a normalization of the car manufacturing process, an increase in inventories, and higher new incentives to buy vehicles.

The main driving force behind disinflation in the United States has been the decline in core goods prices. At the same time, many Fed officials pay a lot of attention to the cost of core services, which, in their opinion, more reflect broad economic trends. It is worth noting that in this case, the rent indicator is not taken into account. In January and February, unstable airline fares in the US caused an increase in prices for core services. Against this background, the largest two-month growth was recorded since mid-2022.

Bank of America economists Stephen Juneau and Michael Gapen said they expected the data to be released on Wednesday to show a drop in prices. They noted that the appropriate tendency in service categories such as airfares and lodging away from home are the main factors explaining their forecast.

As we have reported earlier, Moody’s Expert Warns About Threat to US Economy.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.