Inflation eased in the US in February, but remains very stubborn in its driving force. This makes the Federal Reserve (Fed) face a difficult situation at next week’s meeting due to this resistance and the increasing fragility of the financial system after the fall of two banks.
Prices grew 0.4% from January to February, as in January, but, at an annualized level, the price increase remained at 6%, below the 6.4% of a month ago and well below the 9.1% from last June, when it peaked, according to data from the Bureau of Labor Statistics. It is the lowest rate of inflation since September 2021.
These new numbers highlight, however, the reality that high inflation continues to be a threat to many homes, businesses and the economy in general. This declining result reflects the Fed’s effort to cool down the economy a year ago, when in the same month of March it agreed to the first interest rate hike. That opened a period that continues until today, with an increase of 4.50% in these twelve months that has left the price of money at 4.50-4.75%, which is the largest increase in decades.
But this pressure has not yet produced the result of putting inflation at 2%, which is the healthy level indicated by the barometer of the US central bank. Given this price resistance, largely due to the good health of the labor market despite the frontal attack from the Fed, the Reserve now faces a new dilemma after the shock to the banking system.
Many analysts blame rate hikes for the fragility that led to the intervention of Silicon Valley Bank and Signature Bank last week. This new situation suggested that, despite what was announced, the Fed could put a pause on raising money at the meeting on Tuesday and Wednesday of next week. But Reserve sources told CNBC that the rate increase will continue and that it would be a quarter point, as planned, although the option of a half point is not ruled out.
The perseverance of inflation is reinforced when, excluding the most volatile elements such as energy and food, the core of the consumer price index rose 0.5%, above the 0.4% in January, which the annualized data places at 5.5%, more or less in parallel to a month ago. Economists saw this percentage as proof that inflation remains entrenched.
The decline in the price of energy contributed to tempering the rise in the global cost. Its price fell by 0.6%, which leaves the annual increase in 5.2%. The food bill stretched 0.4% and this means that it stands at 9.5% in the calculation of the last twelve months.
Housing, which represents a third of the weight of the index, increased by 0.8% and the annual value remains at 8.1%. Those responsible for the Fed expect the cost of housing to go down throughout this 2023.
