CPI Report Confirms That Inflation Continues To Be Sticky, Despite The Recent Decreases

(CTN News) – The inflation rate is proving to be more persistent than previously believed. According to the consumer price index report released on Tuesday morning, this was further confirmed.

What’s driving the news: Inflation has no longer been trending down as it did in the second half of 2022. It is rather holding at an uncomfortably high level, with underlying details showing persistent pressures.

Inflation has been bolstered by a strong labor market and persistent consumer demand, which have made the economy resilient to rate hikes. As a result, more aggressive tightening may be required.

• In spite of this, the banking system may be more fragile than previously believed as a result of the Fed’s actions, with potentially destructive spillovers on the economy as the banks tighten credit.

• As a result, officials may move more delicately, although they might be reluctant to do so if inflation in 2023 remains stubbornly high.

In a note, Quadratic Capital Management’s Nancy Davis stated that “the Federal Reserve is running out of good choices.”.

• In order to fight inflation, they need higher rates, but higher rates could lead to further difficulties in the banking industry.”

Over the last three months, core inflation, which excludes food and energy costs, has accelerated to 5.2% annually from 4.6% in January.

• Shelter costs remain a major contributor to upward inflation pressures, as they have done in previous months. This category contributed 0.3 percentage points to the 0.5% increase in core in February. Official statistics have not yet reflected the forces reported by the private sector.

• On the other hand, items that are causing to decrease may prove to be temporary. Medical care services fell by 0.7% last month.

• Used cars and trucks also experienced a 2.8% drop in prices in February, although private sector wholesale data suggests rising costs may eventually appear in the CPI. The goods side of the economy would not be able to provide some of the disinflationary relief.

There appears to be a more complex narrative emerging around inflation, and efforts to curb it could be bumpy, with more obstacles (as demonstrated by the collapse of Silicon Valley Bank) likely to arise along the way.

• As recently as a few days ago, the release of CPI data was considered the key crystal ball for predicting the Fed’s next move, according to Seema Shah, chief global strategist at Principal Asset Management.

• Today, however, inflation is considered a secondary factor in determining monetary policy. Next week, the strength of financial system stress will determine Fed policy.”

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