US inflation likely eased last month to its lowest level in two years but not by a large enough margin to discount the chance of another rate rise from the Federal Reserve in May.

The consumer price index for March, which will be published on Wednesday, is expected to have risen by 5.1 per cent year-on-year, according to a consensus forecast compiled by Bloomberg.

That would mark a significant deceleration compared with the 6 per cent recorded in February as well as the lowest level since May 2021. On a monthly basis, consumer prices are expected to have increased 0.2 per cent.

However, “core” CPI, which strips out volatile energy and food costs, is expected to have increased by 5.6 per cent year-on-year, suggesting that price pressures for some goods and services are still too elevated.

The latest inflation data, which will be released by the Bureau of Labor Statistics at 8:30am Eastern Time, is one of the most important releases ahead of the Fed’s next policy meeting in early May. It comes after the March jobs report, released on Friday, showed the labour market is still strong despite a decline in monthly job creation.

The data comes amid a lack of consensus among top Fed officials over whether another quarter-point rate rise is necessary before the central bank can call time on its year-long battle with inflation. Some officials believe that a credit crunch in the wake of several recent US bank failures could negate the need for another increase.

Last month, most officials backed an additional increase. No cuts are forecast until 2024.

Those who have indicated support for another rate rise argue that inflation is still far too high and the economy has repeatedly defied expectations of a marked slowdown. They also argue that credit conditions may not tighten sufficiently following the failures of Silicon Valley Bank and other lenders to enable the Fed to pause at its next meeting.

However some officials have argued for a pause, including Austan Goolsbee, president of the Chicago Fed and a voting member of this year’s policy-setting Federal Open Market Committee.


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