Rising gasoline costs kept inflation elevated in February, underscoring that the road to more modest consumer price increases following a pandemic-induced spike may continue to be bumpy.
The climb in fuel costs and rent offset flat food prices.
Overall prices rose 3.2% from a year earlier, up from 3.1% in January, according to the Labor Department’s consumer price index. On a monthly basis, costs increased 0.4% following a 0.3% gain the previous month.
What is the core inflation rate right now?
Core prices, which exclude volatile food and energy items and are watched more closely by the Federal Reserve, increased 0.4% after a similar rise in January. That still lowered the annual increase from 3.9% to 3.8%, the smallest since May 2021.
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Are inflation rates going down?
Since hitting a 40-year high of 9.1% in June 2022, inflation has slowed substantially. But after swift progress in the fall, price increases have become more volatile.
Many goods, such as used cars, furniture and appliances, have gotten cheaper the past year as COVID-related supply chain snags have resolved. But the cost of services, such as rent, car insurance and transportation keep advancing, in part because of sharply rising employee wages.
By the end of the year, Barclays expects overall inflation to slow modestly to 2.9% while the core reading drifts down to 3.1% – both still notably above the Fed’s 2% goal.
Will the Fed lower interest rates in 2024?
Fed Chair Jerome Powell told Congress last week that the central bank will likely trim its key interest rate this year but not until officials see more evidence that inflation is moving sustainably toward the Fed’s target. Since March 2022, the Fed has hiked its benchmark short-term rate from near zero to a 22-year high of 5% to 5.25% to corral inflation, though officials have paused since July.
The past couple of months, futures markets have pushed out their forecast for the first Fed rate decrease from March to June and are now predicting four rate cuts this year, down from six.
Tuesday’s CPI report could prompt Fed officials to wait a bit longer, depending on inflation’s course over the next few months.
“While we thought a May rate cut was on the table, it is increasingly likely that the (Fed) waits at least until June” before starting to lower rates, says Nationwide Chief Economist Kathy Bostjancic.
‘I haven’t seen it get any better’
Pat Baldwin, of Detroit, Michigan says she and her husband will fork over $418 for two round-trip train tickets to Chicago, Illinois during the Thanksgiving holiday this year, more than double the pre-pandemic price tag.
“It’s like astronomical,” says Baldwin, who is in her late 50s.
They’ll still take the trip, which will coincide with her husband’s birthday. But to offset the cost, they’ll forgo their traditional Christmas train ride to a small Michigan town.
While many Americans have notched big raises in recent years, finally helping them keep up with inflation, Baldwin says her pay has gone up every other year and lagged inflation.
“I haven’t seen it get any better,” says Baldwin, a program director for a foundation that develops classes and other activities for seniors.
Baldwin says she regularly makes trade-offs. Instead of buying hamburger or chicken at the grocery store, she waits until a protein is on sale and then stocks her refrigerator. Last fall, she had her eye on a $99 pair of dress shoes online but bided her time until they were discounted to $39 and then bought four pairs.
And to save electricity, she now washes the couple’s clothes every three weeks instead of weekly and sometimes substitutes candles for lights.
Why are gas prices climbing again?
Gasoline prices rose 3.8% in February after four straight monthly declines. As spring draws closer, demand is rising and producers are switching to more expensive summer blends.
Will food prices go down in 2024?
Grocery prices were unchanged, lowering the annual increase to just 1% – the smallest since June 2021 – and providing consumers some relief from hefty price gains experienced over much of the past two years. The cost of commodities such as wheat, corn and soybeans generally have come down amid increased global production.
But the picture was mixed last month. Bread prices edged down 0.5%, pork fell 0.8% and chicken declined 1.3%.
But egg prices leaped 5.8% amid another avian flu outbreak, breakfast cereal rose 2%, and fish was up 0.4%.
Some good news: Restaurant bills inched up just 0.1% after a flurry of sharper increases tied to big employee wage hikes in response to labor shortages.
Why is rent so high in the US right now?
Rent remains the biggest contributor to inflation, rising 0.5% in February after several smaller gains. That nudged down the annual rise to a still elevated 5.8% from 6.5%. Economists expect rent increases to moderate, based on new leases, but that has filtered through to existing leases far more gradually than anticipated.
The price of some other services also kept climbing in February. Airline fares jumped 3.6%. Car insurance rose nearly 1% and is up 20.6% over the past year. And car repair costs increased 0.4%.
And while goods prices generally have been softening, some costs rose unexpectedly last month. Used car prices increased 0.5% and apparel, 0.6%. Other products continued their descent amid improved supply chains, with furniture and bedding prices slipping 0.7% and appliances sliding 0.9%.
Among voters, Democrats are more upbeat about the economy
Inflation has been a major worry for many Americans, but a growing number have recently begun to feel more positive about the economy according to a poll conducted by The New York Times and Siena College.
The survey, taken in late February, found 26% of registered voters nationwide felt the economy was good or excellent, a 6% jump from July. The increased optimism was most common among older Democrats.
President Biden still faces significant backlash over inflation from voters, and a slower-than-anticipated return to normal price increases could hurt his re-election chances.
In a statement after the release of Tuesday’s CPI report, Biden said, “Inflation is down two-thirds from its peak and annual core inflation is the lowest since May 2021. Wages are rising faster than prices over the last year and since the pandemic.”
However, he added, “As I said in my State of the Union, we have more to do to lower costs and give the middle class a fair shot.” He said the federal budget he proposed Monday would address inflation by lowering prescription drug costs and rent, among other measures.
Biden’s top economic adviser said the question of affordability will be a top priority for the president.
“It is going to center on health care. It’s going to center on housing. If you look in terms of the sources of affordability challenges, health care and housing are two of the biggest,” Lael Brainard, director of the National Economic Council, told USA TODAY on Tuesday. “Of course, the president also is going to continue focusing on inflation at the grocery store where actually we saw prices being flat over the month.”
It’s unclear how much Biden will benefit from improved inflation numbers at the ballot box. For example, although grocery prices overall have risen modestly the past year. “voters are wanting even lower prices at the grocery stores,” says Gabriel Mathy, an economic professor at American University.
“This could lead to them feeling nostalgic for the prices” under former President Trump, Mathy added.
And most voters’ perceptions of the economy are influenced more by their partisan leanings than objective economic data, says Todd Belt, director of the political management program at George Washington University.
But Mark Zandi, chief economist of Moody’s Analytics, says Biden’s argument for re-election will strengthen among independent voters if the inflation numbers continue to improve in coming months.
Contributing: Swapna Venugopal Ramaswamy, Rachel Looker