Inflation went up again in February 2024. This means the Federal Reserve will probably wait until at least summer to start lowering interest rates. The Consumer Price Index (CPI), which measures how much things cost, also went up. It increased by 0.4% for the month and 3.2% from last year, according to the Labor Department’s Bureau of Labor Statistics (BLS). This was what experts expected for the month, but it’s a bit higher than what they thought for the year.
Prices of Goods and Services
Inflation, which measures how prices for goods and services go up over time, went up by 0.4% last month. This increase excludes the prices of food and energy because they are volatile.
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Over the whole year, inflation went up by 3.8%. This is a bit more than what experts thought would happen. Although inflation isn’t as high as it was in 2022, it’s still higher than how the government wants it. They want it to be around 2%.
Factors Influencing Inflation
An increase in energy costs boosted inflation. Food prices remained the same, but the cost of housing went up by 0.4%.
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The government agency, BLS, found that most of the recent rise in prices came from energy and housing costs. All of that together made up over 60% of the total gain. Gas prices went up by 3.8% in a month. The cost of renting a home, called owners’ equivalent rent, increased by 0.4%.
Home and Rent Prices
Inflation is still increasing, hovering above 3%. And the main reason is housing costs. “Home prices are going up, and even though rent prices aren’t rising as fast, they’re still going up.
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This means that the hope for housing costs to go down and help with inflation isn’t happening anytime soon.” Robert Frick, an economist at Navy Federal Credit Union, made this statement. He also says that recent reports won’t make the Federal Reserve lower interest rates quickly.
More Influencing Factors
Airline ticket prices went up by 3.6%, clothes got a bit pricier with a 0.6% increase. Used cars also went up by 0.5%. Medical costs, which contributed to the higher prices we saw in January, actually went down by 0.1% last month.
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Compared to January, the overall increase in prices this month was just a little bit higher. However, the core prices, which don’t include food and energy, were a bit lower.
Central Bank’s Intervention
After this news on the inflation, the stock market started well. Both major stocks and government bond yields were positive in early trading.
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Inflation has slowed down a bit since it reached its highest point in mid-2022. However, it is still much higher than the 2% target set by the Federal Reserve. The central bank will be having a two-day meeting next week to discuss this issue.
Inflation: Lowering Interest Rates
Recently, officials from the Federal Reserve hinted that they might lower interest rates sometime this year. However, they also mentioned being careful not to ease up too quickly on fighting against high prices. The statement released after the January meeting showed that policymakers want something. They want to be more confident that inflation is getting back to the level they want it to be.
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Chair Jerome Powell talked to Congress about similar worries. However, he also said that the Federal Reserve might be close to the point where it can start making monetary policy a bit easier.
Cutting Interest Rates
Paul Ashworth, the leading economist for North America at Capital Economics, mentioned something. He said that the recent report means the Federal Reserve officials still need more confidence before reducing interest rates. This recent update has caused a change in how financial markets view the timing and number of rate cuts.
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Initially, traders thought the cuts would begin in March, with about six or seven throughout the year. However, they now predict the first cut won’t happen until June. This will be followed by two or three more cuts, each likely to be a quarter of a percentage point.
Inflation: America’s Total Economic Output
A busy economy has let the Fed pay attention to new info without needing to cut rates quickly. The country’s total economic output grew by 2.5% each year in 2023. The output is set to keep growing at the same rate in early 2024. This was reported by the Atlanta Fed’s GDPNow tool.
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A big reason for this growth is a strong consumer base, helped by lots of job opportunities. In February, the economy gained 275,000 jobs, but many were part-time, and the unemployment rate went up to 3.9%.
Inflation: Federal Reserve
This solid economic growth has its ups and downs. It gives the Federal Reserve more time to make decisions on policies when interest rates go up. It also makes people worry that inflation might stick around longer than predicted. Housing prices are especially worrying. Housing is a big part of what determines the CPI, and it’s not getting cheaper as quickly as some experts thought it would. At least according to one way of measuring it by the BLS.
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Federal Reserve officials believe that rental prices will start to go down as the year goes on. Other ways of looking at housing costs that aren’t included in the CPI have shown that price pressures are easing up.