High inflation in the US is putting pressure on the Fed chair to raise interest rates.
(Photo: dpa)
Dusseldorf The price level in the USA continues to rise rapidly. In February, consumer prices (CPI) rose by 7.9 percent compared to the same month last year – the strongest increase since January 1982, the US Department of Labor announced on Thursday.
Experts polled by Bloomberg had previously expected an inflation rate of 7.8 percent. The inflation rate was above economists’ expectations for the sixth time in seven months. In January it was still 7.5 percent.
Prices rose again across the board. Energy became more expensive by 25.6 percent and accounted for almost a third of all inflation. Food prices rose 7.9 percent and housing costs rose 4.7 percent. The core inflation rate, which excludes the volatile developments in energy and food, rose by 6.4 percent.
A relatively small part of the recent increase in energy prices is already reflected in the February inflation data. The effect is only likely to have a full impact in the coming months. “With so much price pressure, even this 40-year high will be exceeded,” commented Allianz’s chief economic adviser, Mohamed El-Erian. “The price increases have not yet reached the end of the road,” said Bastian Hepperle from Hauck Aufhäuser Lampe Privatbank. “Companies will pass on their high cost and wage pressure.”
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On Wall Street, the major indices fell about 1 percent at the opening on Thursday. The yield on the 10-year US Treasury bond rose slightly on the back of the new price data. The dollar also rose slightly.
The new development requires an even more difficult balancing act from the Federal Reserve, similar to that from the European Central Bank (ECB). The high inflation is putting monetary authorities under pressure to raise interest rates in the world’s largest currency area in a timely manner. At the same time, there is growing concern that the extremely high energy prices will have a lasting impact on the economy. If the Fed took action that was too drastic, this negative effect would be amplified.
The key interest rate in the USA is currently in a corridor of zero to 0.25 percent. The next Fed meeting is scheduled for March 16th. It is very likely that there will be a first increase of 0.25 percentage points.
At the last Fed meeting at the end of January – i.e. before the start of the Ukraine war – Fed Chair Jerome Powell gave clear signals that interest rates would be raised soon. Powell’s appearance before the US Congress in early March confirmed this impression. However, the number of interest rate increases in the current year and their extent remain open.
Powell told Congress that he was preparing for “a new phase of uncertainty” in the wake of the Russian invasion of Ukraine. “We must respond quickly to incoming data and the evolving outlook,” the Republican said.
Commerzbank now expects a total of six rate hikes in 2022. “Now it is important that inflation and inflation expectations do not solidify at too high a level,” said analyst Bernd Weidensteiner. “Because then the inflation problem could only be gotten under control at the price of a recession.”
More initial jobless claims
New data on the development of the US labor market also followed in the afternoon. According to this, 227,000 Americans made an initial application for unemployment benefits last week. This figure was slightly above expectations and 11,000 applications higher than in the previous week.
The weekly initial applications are considered a timely indicator of the situation on the job market. Powell had always defined a strong labor market as a prerequisite for a rate hike. The US job market has been very robust overall in recent months.
More: ECB throttles bond purchases faster than previously planned.