Hopes for cost of living respite as US inflation dives
Hopes for a cost-of-living deferral are pinching as US inflation plunges to its lowest level in nearly two years
US inflation fell to its lowest level in nearly two years last month, raising hopes that an end to the cost of living gripping major economies could be in sight.
According to official figures, consumer price index (CPI) inflation in the world’s largest economy fell to 5 percent in March.
It will likely increase pressure on the US Federal Reserve to halt the aggressive rate hikes it has been pushing in its fight to end the price spiral.
Inflation fell from 6 percent in February and was the lowest since May 2021. It was slightly lower than the 5.2 percent calculated by economists.
However, it remains well above the Fed’s 2 percent target, while a “core” measure of price growth — removing volatile food and energy costs — actually rose from 5.5 percent to 5.6 percent.
Rate cut: US inflation fell to 5% in March, likely to increase pressure on the US Federal Reserve to interrupt the aggressive series of rate hikes it has implemented
Gita Gopinath, first deputy general manager of the International Monetary Fund, said the US central bank was “right to keep an eye on inflation” when it raised interest rates in recent months.
But she told news outlet CNBC it was a “very difficult time” for rate setters as they fight inflation while at the same time “not having a major stress event.”
Inflation in the US hit a four-decade high of 9.1 percent last summer, but was tamed more quickly than in Britain, where it still remains in double digits.
In America, the Fed has acted aggressively to combat rising prices by raising interest rates by 4.5 percentage points in a year, causing pain for borrowers as monthly payments rise.
The rate setters will meet in Washington early next month.
Markets think the Fed will go for another quarter point then, but the latest data reinforces bets that it will reverse course in the summer and start cutting interest rates by the end of the year.
The Fed’s thinking is complicated by the possibility that the recent turmoil in the banking sector could be exacerbated by more rate hikes, putting pressure on the economy at large.
The dollar fell back on the latest inflation data, while Wall Street stock indices posted tentative gains that proved short-lived as markets digested the data.
Kieran Clancy, senior US economist at Pantheon Macroeconomics, said: “This report will not stop the Fed from hiking in May.
Officials have made it clear they want to see a series of gradual increases.”
He suggested that resolve could be tested if it sees signs of weakness in the labor market.
“We think that’s imminent, so the coming months are likely to see a serious shift in the Fed’s stance,” he added.