The latest US inflation numbers may give clues to the future of interest rates

WASHINGTON (AP) — This may be the biggest question American economy Now: Is inflation stuck at high levels – or will last year’s steady decline soon resume?

On Wednesday, the government will release the latest monthly inflation report, which will be scrutinized by economists, Wall Street traders and Federal Reserve officials for any insight into that question. Analysts estimate that year-on-year inflation eased to 3.4% in April from 3.5% in March, according to a survey by data provider FactSet. Measured from March to April, consumer prices are expected to have risen 0.4% from the previous month.

Core inflation, excluding volatile food and energy costs, may show some relief is in sight: It is forecast to ease to 3.6%, down from 3.8% in March, the lowest level in three years. On a month-to-month basis, core prices are believed to have risen 0.3% from 0.4% previously. The central bank keeps a close eye on key prices, which gives it a better read on where inflation is headed.

Whether inflation continues its decline will have a significant impact This year’s presidential race. Republican critics of President Joe Biden have sought to pin the blame for the high prices on the president and use it to try to derail his re-election bid. Although hiring is strong and wage growth is, on average, healthy, prices are generally higher than they were before the pandemic.

On Tuesday, Fed Chair Jerome Powell He reiterated that he expects inflation Ultimately to meet the central bank’s 2% target. But in comments during a panel discussion in Amsterdam, Powell admitted that his confidence in that forecast had weakened after three months of rising prices. Inflation has fallen sharply from 9.1% in summer 2022, but is now higher than in June 2023, when it first touched 3%.

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Central bank policymakers have raised the key interest rate to a 23-year low of 5.3% in an effort to curb rising prices. Powell underscored Tuesday The central bank will keep its rate at that level for as long as needed to fully contain inflation, a signal that rate cuts will not begin as many had expected.

Such comments from Powell dented confidence on Wall Street that the central bank would cut its rate three times this year, as Fed officials had predicted in March. Many economists now expect only one or two cuts this year, starting in September.

Economists are divided over whether higher inflation figures in recent months reflect a re-acceleration in price growth or an echo of pandemic-related price distortions. Auto insurance is up 22% from a year ago, for example, and that surge may reflect factors specific to the auto industry: New car prices rose during the pandemic, and insurance companies are now trying to raise higher repair and replacement costs. Premiums.

Stubbornly inflated apartment rents are another major factor behind persistent inflation. Rents rose during the pandemic as more Americans sought to live alone or seek more living space. Rents for new leases are rising more slowly, in line with pre-pandemic patterns, with earlier increases still pushing up government price data.

In fact, rents and auto insurance make up most of the inflation gauges, said Alan Detmeister, an economist at UBS and a former Fed employee.

“Everything else is pretty good,” Dittmeister said. “Inflation is still coming down, although it’s not coming down as quickly as we’d hoped.”

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Other economists point to steady consumer spending on restaurant meals, travel and entertainment, with price increases in some cases lifted, reflecting stronger demand.

Powell, in his comments on Tuesday, also highlighted rising rents as a key factor keeping inflation high. He called it “a conundrum” because new apartment leasing measures show new rents are barely increasing. Such weak data has yet to feed into the government’s measures to renew leases and cover all rents, including tenants facing large increases. Powell said that the government’s actions should eventually show that rental growth is easing.

The Fed chairman acknowledged that the economy is “different this time” as many Americans refinance their mortgages at much lower rates before the Fed starts raising borrowing costs in March 2022.

“It could be,” he said, adding that the Fed’s rate policy “is hitting the economy Not very strong What would it be like if those two things weren’t there.”

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