In the USA, too, prices have risen sharply since the beginning of the Ukraine crisis.
(Photo: Bloomberg)
New York, Dusseldorf Inflation in the US has fallen again. The Labor Department announced on Wednesday that US consumer prices rose 5.0 percent in March compared to the same month last year. This is the ninth straight decline in the rate.
In February, the US inflation rate was 6.0 percent, down from 6.4 percent in January. Economists had forecast an inflation rate of 5.2 percent for March.
The further decline in the inflation rate shows that the monetary policy of the US Federal Reserve (Fed) is having an effect. She had raised key interest rates in several steps in order to suppress inflation. The interest rate is currently in the range of 4.75 to 5.0 percent.
However, core inflation rose. It was 5.6 percent in March, after 5.5 percent in February. It calculates out volatile energy and food prices.
It was the first time in over two years that core inflation was above the headline inflation rate. Monetary policymakers look particularly closely at this key figure. Rising core inflation is seen as an indication that inflation has already spread to large areas of the economy and is threatening to solidify.
The drop in inflation, “while notable, has a lot to do with the fact that we are comparing today’s energy prices to the initial spike in energy costs after the Russian invasion of Ukraine in February 2022,” said Olu Sonola, economist at the Rating agency Fitch.
Far from inflation target
This does not paint a clear picture for the Fed. On May 3, she will decide on the further interest rate strategy. There has long been speculation on the markets that the monetary watchdogs will not be able to raise interest rates any further. “Inflation is moving in the right direction, but overall levels are still too high,” Sonola believes. On the other hand, after the banking crisis in March, the Fed must also ensure that the stability of the financial system is guaranteed.
Derek Tang, an economist at analyst firm LH Meyer in Washington, also expects the Fed to hike interest rates by a quarter of a percentage point in May. However, it is conceivable that the Fed could then pause interest rates.
Monetary policymakers are divided on the next steps. John Williams, head of the regional Fed in New York, spoke on Tuesday for another rate hike because the Fed is not yet on target in fighting inflation.
The head of the Fed in Chicago, Austan Goolsbee, on the other hand, called for “caution and patience” from his colleagues. One must first observe the effects of the banking crisis and the much tighter credit conditions. There is great uncertainty about how the problems in the financial sector will continue to develop. “So we should be careful,” Goolsbee said.
Fed Chairman Jerome Powell left all options open after the last interest rate decision in mid-March. Further rate hikes may be appropriate but are not guaranteed.
Markets react promptly
In addition to the inflation data, the situation on the labor market is also relevant for the Fed’s decision. It had cooled down significantly in March, but not as much as economists had feared. However, the unemployment rate was lower than expected. In combination with inflation, which is still above the target value of two percent, this speaks against an interest rate break in the near future.
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The prospect of a less hawkish Fed is fueling optimism in equity markets. The futures of the most important US indices turned positive after the publication and thus signal a friendly opening of the US stock exchanges. The Dax immediately jumped to a new high for the year of 15,827 points, but then gave up the gains again.
The yield on the two-year US Treasury bond fell below four percent. Short-term bonds are particularly sensitive to interest rate developments and their prospects. Ten-year bonds yielded 3.362 percent. The dollar index, which compares the currency’s value to other major currencies, fell slightly.
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