Tag: Inflation

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The Fed says progress has been made in the fight against inflation

Federal Reserve Inflation

Federal Reserve Chair Jerome Powell has expressed satisfaction with the current progress in the inflation battle but indicated a desire for additional positive data before considering a reduction in interest rates.

“We want to be more confident that inflation is moving sustainably down toward 2% before we start the process of reducing or loosening policy,” he said.

While Powell acknowledges progress in inflation, he remains cautious about acting prematurely and jeopardizing the trend of decreasing prices.

Markets moved up after Powell’s comments.

Update: A Fed statement released after the market closed stated that – Fed says it’s not ready to cut rates until ‘greater confidence’ inflation is moving to 2% goal

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Euro zone inflation eases to 2.5% but core measure misses

EU inflation

Inflation in the euro zone dipped to 2.5% in June 2024, the European Union’s statistics agency said on Tuesday 2nd July 2024, in line with expectations.

However, core inflation, excluding energy, food, alcohol and tobacco, remained at 2.9% from the prior month, just missing the 2.8% forecast.

The rate of price rises in services also failed to move sticking at 4.1%.

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U.S. inflation at 2.6% in May 2024 from a year ago

U.S. PCE

The core Personal Consumption Expenditures (PCE) price index witnessed a modest increase of 0.1% (seasonally adjusted) for the month and has risen 2.6% from the previous year – broadly as expected by analysts.

May 2024 experienced the lowest annual rate since March 2021, the Federal Reserve’s inflation target is 2%.

Personal income grew by 0.5% for the month, surpassing the estimated 0.4%. However, consumer spending saw a 0.2% rise, falling short of the 0.3% expected.

Data according to U.S. Bureau of Economic Analysis

Note: PCE represents Personal Consumption Expenditures. It measures consumer spending in the United States by tracking expenditures on goods and services. The PCE price index particularly tracks variations in household living costs, serving as a primary indicator of inflation.

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“I’ve been saving this for a rainy day, Mr. Sunak – but I think you might need it now.”

Umbrella for Sunak

Bank of England offers no election help to Rishi Sunak as the UK interest rate is held at 5.25%. Not that they should.

But the UK inflation is on target now at 2% so that’s some consolation. The PM claimed credit as the inflation target was met – happily informing us that his plan was working. But isn’t it the job of the Bank of England to maintain inflation at 2%?

Not that they have done a very good job of that either.

Soggy wet politics!

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UK hits 2% Bank of England’s inflation target for the first time since 2021

THERE ARE TWO I'S IN INFLATION!

Inflation has reached the Bank of England’s target for the first time in nearly three years, having soared to 11.1% in October 2022, the highest in over four decades – driven by a spike in energy and food prices following the pandemic and Russia’s invasion of Ukraine.

In the year leading up to May 2024, prices increased by 2%, a decrease from the 2.3% rise in the previous month, according to official statistics.

The economy remains a central issue in the lead-up to the general election on July 4th, with all major parties discussing strategies to manage the cost of living.

This discussion precedes the Bank of England’s upcoming decision on UK interest rates this due on 20th June 2024.

The bank is anticipated to maintain the rate at 5.25% – a peak not seen in 16 years – for the seventh consecutive meeting, with the market not expecting a reduction until August 2024.

The decline in May’s inflation rate was attributed to slower price increases for food and soft drinks, recreation and culture, and furniture and household items.

Fuel pump prices remain high.

The inflation target has been achieved – it must be time for a reduction in interest rates.

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Nasdaq and S&P 500 hit new all-time highs as Fed feeds scraps to the AI frenzy!

Record high!

The S&P 500 soared to a new high, surpassing 5400 for the first time on Wednesday 12 June 2024, following the Federal Reserve’s latest policy statement and the May 2024 inflation report, which suggested a softening of inflationary pressures.

The S&P 500 index rose by 0.85%, closing at around 5421 while the Nasdaq Composite advanced 1.53%, finishing at 17608.

Both the S&P 500 and Nasdaq reached unprecedented levels and set closing records on Wednesday 12th June 2024. Conversely, the Dow Jones Industrial Average marginally declined by 0.09%, or around 35 points, to settle at 38712.

S&P 500 at new all-time high 12th June 2024

S&P 500 at new all-time high 12th June 2024

Nasdaq Composite at new all-time high 12th June 2024

Nasdaq Composite at new all-time high 12th June 2024

The Federal Reserve maintained the interest rates, aligning with widespread expectations. The Fed also acknowledged some progress on inflation. Modest further progress has been made toward the Committee’s 2% inflation goal and this was more than enough coupled with the recent jobs report to push U.S. markets even higher.

A tiny glimpse of the ‘2% inflation future’ was all it took to send markets on an AI led feeding frenzy to push the S&P 500 and Nasdaq to new all-time highs.

One caveat though, the Fed’s recent forecasts predict only one rate reduction this year, a decrease from the three rate cuts anticipated earlier in 2024.

It was enough to propel markets to fresh all-time highs!

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U.S. job gains reached 272,000 in May 2024 – exceeding expectations of 190,000

U.S. jobs

The U.S. economy exceeded job growth expectations in May 2024, alleviating concerns of a labour market downturn but potentially diminishing the Federal Reserve’s motivation to cut interest rates.

Non-farm payrolls surged by 272,000 for the month – a significant increase from April’s 165,000 and surpassing the consensus forecast of 190,000.

Concurrently, the unemployment rate increased to 4%, marking the first instance it has reached this level since January 2022.

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European Central Bank (ECB) cuts interest rate by 0.25% to 3.75%

On Thursday, 6th June 2024, the European Central Bank announced a reduction in interest rates, a move that was widely expected, despite persistent inflationary pressures in the eurozone, which comprises 20 nations.

The central bank’s primary rate has been lowered to 3.75%, a decrease from the historic high of 4% where it has remained since September 2023.

The money markets had completely anticipated the 0.25% reduction at the June meeting. This marks the first decrease since September 2019, when the deposit rate was below zero.

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Euro zone inflation rises to 2.6% in May 2024

Euro zone inflation

Eurozone inflation increased to 2.6% in May 2024, according to Eurostat’s announcement on Friday 31st May 2024.

Analysts had anticipated a 0.1% rise from the 2.4% headline figure reported in April 2024.

Core inflation, which omits the unstable effects of energy, food, alcohol, and tobacco, rose to 2.9% from April’s 2.7%. Contrary to the flat reading projected by economists.

A deviation from the expected 0.25% cut at the ECB’s June 2024 meeting would significantly surprise the markets, given the strong signals from policymakers in recent weeks.

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IMF recommends UK interest rates should be cut to 3.5% by end of 2025

UK Charts

The International Monetary Fund (IMF) advises that the Bank of England should contemplate reducing its interest rates to 3.5% by the end of 2025.

This suggestion is made as the UK’s economy steadily recovers from the recession caused by the pandemic, while policymakers are dealing with inflationary challenges.

The ‘thinking’ behind the recommendation

Economic Recovery and Inflation Outlook

The IMF’s recommendation is grounded in its assessment of the UK’s economic trajectory.

Growth Forecast

The International Monetary Fund has upgraded its growth forecast for the UK in 2024, signaling a positive outlook. It anticipates growth of 0.7% this year and 1.5% in 2025.

Inflation

The IMF anticipates that UK inflation will decline to near the Bank of England’s target of 2% and stabilise at this rate in early 2025, indicating that inflationary pressures are within manageable limits.

Soft Landing

The UK economy is said to be approaching a ‘soft landing‘ following the mild recession of the previous year. Policymakers are focused on finding a balance between fostering growth and managing inflation.

Monetary Policy Considerations

The Bank of England’s Monetary Policy Committee (MPC) has been closely monitoring economic indicators and inflation trends. Here’s why the IMF’s recommendation matters:

Interest Rate Peaks

The Monetary Policy Committee has indicated that interest rates might have reached their peak. The current restrictive monetary policy is having an impact on the actual economy and the dynamics of inflation.

Market Expectations

Analysts anticipate the first interest rate cut by September 2024 at the latest. Market expectations align with this projection, with the base interest rate likely to be lowered to 4% by the end of 2025.

Balancing Act

Policymakers face the delicate task of supporting economic recovery while preventing runaway inflation. The IMF’s suggestion aims to strike this balance.

Implications for Borrowers and Savers

Mortgage Holders

Variable Rate Mortgages

If you have a variable rate mortgage, a rate cut could reduce your monthly payments. However, keep an eye on your lender’s response to any rate changes.

Fixed Rate Mortgages

Fixed-rate borrowers won’t immediately benefit from rate cuts, but they should still monitor the situation. If rates continue to fall, refinancing might become attractive.

Savers

Savings Accounts

Lower interest rates typically lead to diminished returns on savings accounts. It may be wise to diversify your investments to seek potentially higher yields in other areas.

Fixed-Term Deposit

Current fixed-term deposits will remain unaffected; however, new deposits might generate lower yields. It is advisable to carefully assess your alternatives.

Conclusion

The IMF’s recommendation highlights the intricate balance between fostering economic recovery and managing inflation. As the Bank of England considers its next steps, it is crucial for borrowers and savers to remain informed and adjust their financial strategies as needed.

For homeowners, investors, and savers alike, grasping the potential consequences of rate cuts is key to making well-informed choices in an ever-changing economic environment.

Disclaimer: The information provided here is based on current projections and should not be considered financial advice. It is not given as financial advice – it is for discussion and analysis only!

Consult a professional advisor for personalised recommendations.

Remember – always do your careful research first!

RESEARCH! RESEARCH! RESEARCH!

Update

The Bank of England has given its strongest hint yet that interest rates could be cut this summer. This comment was observed in a recent speech given by the deputy governor of the Bank of England.

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UK headline inflation rate falls to lowest in three years but comes in hotter than expected

The April inflation came in higher than anticipated, falling to 2.3%, as reported by the Office for National Statistics on Wednesday 22nd May 2024.

Traders have now reduced their expectations of a June interest rate cut by the Bank of England (BoE). Markets reacted negatively in early trading.

The headline inflation rate decreased from 3.2% in March, marking the first instance since July 2021 that inflation has fallen below 3%, nearing the Bank of England’s target of 2%.

Contrary to the predictions of economists surveyed by Reuters, who expected a more significant drop to 2.1%, services inflation – a critical indicator monitored by the BOE due to its significance in the UK economy and as a gauge of domestically generated price increases – only fell marginally to 5.9% from 6%, missing the anticipated 5.5% from the BOE.

Core inflation, which excludes energy, food, alcohol, and tobacco, decreased to 3.9% in April from 4.2% in March.

The substantial decline in the headline rate was largely anticipated due to the year-on-year decrease in energy prices. However, investors shifted their attention to core and services inflation following indications from BOE policymakers of a potential interest rate cut later in the summer, contingent on new data.

After the data release, the market-makers probability of a June rate cut plummeted to 15% from 50% and the chance of an August cut also fell to 40% from 70%.

Lingering concerns over underlying inflationary pressures mean a June rate cut is unlikely. However, these figures may convince more rate setters to vote to ease policy, providing a signal that a summer rate cut is still a possibility.

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UK interest rate held at a 16-year high as Bank of England holds rates at 5.25%

On hold

The decision comes as inflation, which measures price rises over a period of time, remains above the Bank’s 2% target at 3.2%. But bank says cuts are coming.

Is the 2% target still a sensible benchmark?

The 2% inflation target set by central banks has been a widely adopted benchmark for monetary policy.

History

The 2% inflation target became prominent in the 1990s and early 2000s. Central banks, such as the Federal Reserve and the Bank of England, have aimed to maintain inflation at this level.

The Federal Reserve has typically pursued an inflation rate of about 2% since 1996.

In January 2012, then-Fed Chairman Ben Bernanke formally established the 2% target, and subsequent Fed chairs have continued to endorse this rate as the preferred level of inflation.

Why the 2% target?

Price stability

The 2% inflation target was selected as it provides a balance between preventing problematic inflation and avoiding damaging deflation. Does it work?

Avoiding deflation

Deflation, characterized by falling prices, can hinder economic growth. Central banks target a 2% inflation rate to avert deflation and ensure stability.

Creditor-Debtor compromise

The 2% inflation target represents a balance between creditors’ preference for lower inflation and debtors’ inclination towards higher inflation.

Challenges

Changing economic environment

In recent years, the global economy has encountered distinct challenges, including sluggish growth, technological upheavals, and demographic changes. Consequently, there is a debate on whether the 2% inflation target requires reassessment.

Persistently low inflation

Despite the efforts of central banks, inflation has persisted below the 2% mark in numerous advanced economies, sparking debates over the potential need to modify the target.

Trade-offs

Aiming for a 2% inflation rate can occasionally clash with other policy objectives, like employment or financial stability. It’s crucial for central banks to judiciously manage these competing priorities.

Revision

Several central banks are revising their strategies. For example, the European Central Bank (ECB) has adopted a more adaptable inflation target, permitting temporary exceedances to balance out extended periods of below-target inflation.

The Bank of England also considers broader economic factors when setting policy, rather than rigidly adhering to the 2% target.

IIn summary, although the 2% inflation target has been a helpful benchmark, central banks are progressively willing to adjust their strategies in response to evolving economic conditions. The current debate focuses on striking an optimal balance between stability, growth, and adaptability.

Central banks saw this period of inflation as ‘transitory’ – it wasn’t. It could be argued that their lack of action led to a bigger inflation problem overall.

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Fed foe inflation forces U.S. to hold rates and they will likely remain high for some time yet!

U.S. economic health

The Fed have deliberated over ‘transitory’ inflation – (they got that wrong). They have teased us about when rates will be cut (still waiting). And now we are told no rate cut but: ‘the next rate move is unlikely to be up!’

Probably better to say and do nothing at all? Are you a bit confused? I am.

The U.S. central bank has decided to maintain interest rates, reasoning a ‘lack of further progress’ in reducing inflation. This leaves the Federal Reserve’s key rate at its highest in over two decades, between 5.25% and 5.5%.

Sticky problem

By maintaining high borrowing costs, the Federal Reserve seeks to decelerate the economy and reduce inflationary pressures. However, this also increases the financial burden on businesses due to elevated borrowing expenses and on consumers through higher mortgage and loan payments.

However, as U.S. inflation remains more stubborn than anticipated (and that is being generous), the Fed is now being closely scrutinized over its forthcoming actions.

Analysts, who had predicted rate reductions early this year, have had to delay their projections, with some even suggesting a potential rate hike.

No rate cuts but ‘hike’ unlikely – that’s helpful then

Following the declaration, the Fed Chair reportedly expressed his belief that a rate hike is ‘unlikely,’ reiterating the need for more assurance of subsiding inflation before considering a reduction.

‘The decision will truly be data-dependent; it’s going to take longer to reach that point of comfort. I don’t know how long it will take’, he reportedly stated.

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Recent U.S. data is indicating inflation is proving stubborn and isn’t going away anytime soon

Inflation has become a persistent challenge for the Fed

The battle against inflation persists, gradually impacting the U.S. economy and presenting substantial challenges for the Federal Reserve.

Despite concerted efforts to control it, inflation remains stubbornly remains, leaving policymakers in a dilemma – to stimulate economic growth or to curb spiraling prices.

Let the data speak

Recent data presents a concerning scenario. Indexes from the Commerce Department, used by the Federal Reserve as indicators of inflation, reveal that prices are rising at a rate significantly exceeding the central bank’s annual target of 2%. Consumer spending persists, encouraged by the excessive amount of money circulating in the financial system.

However, this spending spree isn’t sustainable, and consumers are dipping into their savings to fund purchases. The personal savings rate has plummeted to its lowest level since October 2022. Borrowing is up and debt is far too high!

The Federal Reserve’s primary inflation gauge, the personal consumption expenditures price index, rose to 2.7% in March, encompassing all items. The crucial core index, excluding the more volatile food and energy prices, remained constant at 2.8%. These figures highlight the ongoing inflationary pressures.

Fed’s dilemma

The Federal Reserve is navigating a precarious inflation situation. Should it shift towards rate reductions prematurely, there’s a risk that inflation might surge back in 2024. Conversely, persistent inflation could compel central bankers to not only sustain the present rates but also ponder additional increases. The aspiration for a gentle economic descent is at stake.

Outlook

Forecasters anticipate inflation to dip below 2.5% in 2024, yet challenges persist. The Federal Reserve faces the difficult task of steering the economy towards stability and controlling inflation expectations. With the central bank’s policy meeting on the horizon, speculation abounds regarding their forthcoming strategy.

Will they maintain the current interest rates or implement more assertive measures? Their decision is set to influence the economic outlook for the foreseeable future.

Conclusion

U.S. inflation continues to be a persistent challenge, and the Federal Reserve’s efforts are ongoing. The path forward demands cautious steering, as policymakers must achieve a fine equilibrium to sustain economic stability while simultaneously curbing inflation.

And remember, the Fed said inflation was ‘transitory’.

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UK inflation eases to 3.2% but down less than expected

UK inflation data March 2024

Inflation in the U.K. eased to 3.2% from 3.4% in March, the Office for National Statistics said on Wednesday 17th April 2024.

But a higher-than-expected reading creates more concern as investors push back bets on the timing of the first Bank of England (BoE) rate cut.

Economists expected 3.1% as inflation has been falling gradually since it peaked at 11.1% in late 2022.

Food prices provided the biggest downward drag on the headline rate, the ONS said, while motor fuels pushed it higher.

The core inflation rate, excluding energy, food, alcohol, and tobacco, was reported at 4.2%, slightly above the forecasted 4.1%. Services inflation, closely monitored by U.K. monetary policymakers, decreased from 6.1% to 6%, still surpassing the expectations of economists and the Bank of England (BoE).

The March core inflation figure, remaining above 4%, is expected to fuel speculation that inflation is more persistent than recent projections indicated, potentially delaying the anticipated timing of initial interest rate reductions.

UK inflation 3.2% March 2024

UK inflation 3.2% March 2024
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U.S. Supercore inflation measure indicates Fed may have a problem

Markets have fretted about core inflation recently, now analysts are concerned about a highly specific price gauge within the data – ‘supercore’ inflation.

This measure tracks services inflation, excluding food, energy, and housing, which has recently surged, rising 4.8% year-over-year in March 2024 and over 8% on a three-month annualised basis.

The situation is further complicated as some of the most persistent elements of services inflation include essential household expenses such as car and housing insurance, along with property taxes. Wall Street was unsettled by a recent consumer price index report that exceeded expectations, yet the focus is on the ‘supercore’ inflation reading within the data.

Economists also analysed the core CPI, which omits the volatile prices of food and energy, to discern the true inflation trend. The ‘supercore’ gauge goes a step further by also removing shelter and rent costs from its services calculation.

Federal Reserve officials find this measure particularly useful in the current environment, viewing the spike in housing inflation as a transient issue rather than a reliable indicator of underlying price trends.

Supercore inflation accelerated to a 4.8% pace year over year in March 2024, the highest in 11 months.

Sticky inflation problem

Adding complexity to the situation is the declining consumer savings rate coupled with rising borrowing costs, which may compel the central bank to maintain a restrictive monetary policy “until something breaks,” according to Fitzpatrick.

Analysts warn that the Federal Reserve may struggle to reduce inflation through additional rate hikes, as the prevailing factors are more persistent and less responsive to stringent monetary policy.

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U.S. markets unfazed by hot CPI data

U.S. Flag

Despite the recent surge in the Consumer Price Index (CPI), and better than expected PPI data, markets have shrugged off any concern… for now

Fickle

On Wednesday 10th April 2024 the CPI data announcement pushed the markets down and on Thursday 11th the markets recovered after the PPI data was better than expected.

CPI Report for March 2024

  • Both headline and core CPI rose by 0.4%, surpassing forecasts.
  • Bond markets are now cautious about potential rate cuts, shifting from a floor of three cuts to a possible ceiling.
  • Groceries’ inflation has eased, but housing costs remain a pressure point.
  • Fed policymakers closely monitor Supercore services inflation.
  • Solid wage gains continue to impact prices.

Producer Price Index (PPI)

PPI increased by 0.6% in February 2024. Expectations persist for June rate cuts by the Federal Reserve.

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Nvidia enters correction territory as stock falls from all-time high

AI

Nvidia, manufacturer of one of the most advanced graphics processing units (GPUs), has significantly benefited from the artificial intelligence (AI) surge due to the high demand for its microchips.

The company’s shares have fallen 10% from their recent all-time high, which was over $950. On Tuesday, 9th April 2024, the stock closed at $853.54, but it saw a slight recovery on Wednesday 10th April 2024, to $870.39.

Nvidia Corporation share price off recent all time high

Nvidia Corporation share price off recent all time high

On Tuesday, 9th April 2024, Intel, a competitor in the chipmaking industry, introduced a new AI chip named Gaudi 3. This chip is designed to drive large language models and stands as a contender against Nvidia’s most sophisticated chips.

U.S. inflation data coming in higher than expected along with a climb in treasuries has led to doubts of a Fed rate cut anytime soon.

These concerns combined together, pushed Nvidia and some other tech stocks lower.

The Nasdaq Composite drifted lower on the day

The Nasdaq Composite drifted lower
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Does the U.S. jobs boom raise doubts about rate cuts?

U.S. job creation vs inflation and interest rates

The U.S. economy is on a rip, with employers adding around 303,000 jobs in March 2024 – the largest increase in almost a year.

As the world’s largest economy continues to surge, questions arise about the Federal Reserve’s next move regarding interest rates.

Stronger-than-expected Job Growth

The unemployment rate fell to 3.8%, indicating strong job growth in several sectors such as health care, construction, and government. While economists had predicted job gains of approximately 200,000, the actual numbers have easily exceeded those expectations.

The labour market’s surprising resilience has caught analysts off guard, leading to speculation about the timing of interest rate cuts.

Fed’s Dilemma

The Federal Reserve has held interest rates in a range of 5.25%-5.5%, the highest level in over two decades. Initially, the Fed raised rates sharply in 2022 to curb inflationary pressures. However, the subsequent cooling of price inflation (down to 3.2% in February) without a significant spike in unemployment has complicated matters. The central bank now faces a delicate balancing act.

Delayed Rate Cuts?

The significant increase of 303,000 in non-farm payrolls for March 2024 reinforces the Federal Reserve’s stance that the robustness of the economy permits a gradual approach to interest rate reductions.

The Fed had been expected to initiate rate cuts this year to mitigate the impact of high borrowing costs. However, the stronger-than-anticipated economic performance suggests that rate cuts may not occur until the second half of this year.

Labour Market Dynamics

U.S. government spending in areas like high-tech manufacturing and infrastructure has bolstered the labor market. Additionally, an influx of more than three million immigrants last year has expanded the workforce, potentially keeping wage pressures in check. In March, average hourly pay rose by 4.1% year-on-year, consistent with expectations and near a three-year low.

America’s Comeback

President Joe Biden hailed the latest job figures as a “milestone in America’s comeback.” However, some market analysts argue that the strong jobs growth could complicate efforts to return inflation to the Fed’s 2% target. Some analysts even speculate that rate cuts may not materialize until 2025.

Global Implications

Higher U.S. interest rates have ripple effects worldwide, enticing investors to shift capital toward America. While the Fed’s in-tray still has some warnings, the delay in rate cuts reflects the economy’s underlying strength.

The U.S. jobs boom presents a conundrum for policymakers. Balancing economic vitality with inflation control remains a delicate task, and the Fed’s decisions will reverberate far beyond its borders.

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Euro zone inflation unexpectedly falls to 2.4% in March 2024

EU inflation

Eurozone inflation eased to 2.4% in March 2024, as indicated by preliminary figures released on Wednesday 3rd April 2024.

This decrease has increased expectations that interest rate cuts may start in the summer 2024.

Market analysts anticipate that the central bank will commence reductions in interest rates starting in June 2024, reflecting recent communications from the ECB.

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Fed Chair Powell stresses the importance of additional proof that inflation is subsiding before cutting interest rates

Powell

Federal Reserve Chairman Jerome Powell stated on Wednesday 3rd April 2024 that policymakers will need time to assess the current inflation situation, leaving the schedule for potential interest rate reductions unclear.

Referring to the stronger-than-anticipated price pressures at the year’s onset, Powell reportedly stated that he and his colleagues are not in a hurry to relax monetary policy.

Market expectations are leaning towards the FOMC initiating policy easing this year, although adjustments to the anticipated timing and scale of reductions have been necessary due to persistently high inflation.

Meanwhile, other economic indicators, especially in the U.S. labour market and consumer spending sectors, remain robust, affording the Fed the opportunity to evaluate the prevailing situation prior to taking action.

The target rate is 2%.

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UK inflation down to 3.4% in February 2024

UK inflation

In February 2024, inflation decreased to 3.4%, a decline from January’s 4%, moving closer to the Bank of England’s self-imposed target of 2%


This reduction signifies that the cost of living is increasing at its least rapid rate since September 2021, when it was recorded at 3.1%.

Since reaching a peak of 11.1% in October 2022, the highest in 40 years, inflation has been on a steady decline. In the big inflation picture, that’s a pretty good result.

It has only taken around 16 months to move the rate from 11.1% (a 40-year high) down to just 1.4% above the BoE’s target of 2%.

The primary factor contributing to this decrease, as reported by the Office for National Statistics (ONS), is the deceleration of food price inflation.

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U.S. consumer prices rose 0.4% in February 2024 and 3.2% from a year ago

U.S. inflation

The U.S. Consumer Price Index, a comprehensive gauge of the cost of goods and services, rose by 0.4% for the month and increased by 3.2% compared to the previous year.

The annual rate was marginally higher than expected. The monthly rate was slightly above the forecast of 0.3%. This may likely direct the Federal Reserve to hold off on an interest rate reduction, at least until the summer of 2024. What will Wall Street make of it?

The core Consumer Price Index increased by 0.4% monthly and recorded an annual rise of 3.8%. Both figures exceeded forecasts by one-tenth of a percentage point.

An increase of 2.3% in energy costs contributed to the rise in the overall inflation figure. Food prices remained mostly unchanged for the month, while housing expenses saw a further increase of 0.4%.

U.S. consumer price index data for February 2024 – Month on month
U.S. consumer price index data for February 2024 – Year on year
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Powell says the Fed is not ready to start cutting interest rates yet

U.S. interest rates

In his Capitol Hill testimony on 6th March 2024, Federal Reserve Chairman Jerome Powell reiterated that was not yet time to begin cutting interest rates.

To fight inflation, which reached a rate of 9% in the summer of 2022, the central bank has significantly increased interest rates in recent times. However, prices are still stubborn, especially for things like housing and groceries.

Due to the robust economic performance in early 2024, the expected reduction in interest rates has been postponed. Instead of taking place this month, the rate cuts are now more probable in May or June 2024.

Powell reportedly said: ‘The Committee does not expect that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.’

He reiterated the pledge to lower inflation to the 2% target and keep long-term inflation expectations stable.

UPDATE

On Thursday 7th March 2024 Powell also said: the Fed is ‘not far’ from the point of cutting interest rates

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Inflation in the euro-zone eased to 2.6% in February 2024

Euro zone inflation

Euro zone inflation eased to 2.6% in February figures showed on Friday 1st March 2024, but both the headline and core figures were higher than expected.

Core inflation

Core inflation, removing the volatile elements of energy, food, alcohol and tobacco was 3.1% above the 2.9% rate expected.

The February figures will be a headache for EU policymakers, as core inflation is still holding above 3% even as the headline rate moves toward the ECB’s 2% target.

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U.S. inflation up 0.4% in January 2024 as expected and up 2.8% year to-date but coming down ever-closer to 2% target

U.S. inflation

U.S. inflation climbed in line with expectations in January 2024, according to the preferred measure the Federal Reserve uses to make decisions on cutting interest rates.

The personal consumption expenditures (PCE) price index, excluding food and energy costs, increased 0.4% for the month and 2.8% from a year ago, as expected according to analyst’s predictions.

Headline PCE, including the volatile food and energy categories, increased 0.3% monthly and 2.4% on a 12-month basis according to the numbers released Thursday 29th February 2024 by the Commerce Department’s Bureau of Economic Analysis.

The data was released amid an unexpected jump in personal income, which rose 1%, well above the forecast for 0.3%. Spending decreased 0.1% vs. the estimate for a 0.2% gain.

U.S. inflation target is 2%.