Gas, rents keep U.S. inflation high

Latest data threaten to torpedo the prospect of multiple rate cuts by Federal Reserve this year

WASHINGTON Consumer inflation remained persistently high last month, boosted by gas, rents, auto insurance and other items, the government said Wednesday in a report that will likely give pause to the U.S. Federal Reserve as it considers how often — or even whether — to cut interest rates this year.

Prices outside the volatile food and energy categories rose 0.4 per cent from February to March, the same accelerated pace as in the previous month. Measured from a year earlier, these core prices are up 3.8 per cent, unchanged from the yearover-year rise in February. The Fed closely tracks core prices because they tend to provide a good read of where inflation is headed.

Wednesday’s figures represent a disappointment for the White House. Republican critics of President Joe Biden have sough to pin the blame for high prices on the president and use it as a cudgel to derail his re-election bid. Polls show that despite a healthy job market, a near-record-high stock market and a decline in inflation from its peak, many Americans blame Biden for high prices.

The March figures, the third straight month of inflation readings well above the Fed’s two per cent target, provide concerning evidence that inflation is stuck at an elevated level after having steadily dropped in the second half of 2023. The latest numbers threaten to torpedo the prospect of multiple rate cuts this year. Fed officials have made clear that with the economy healthy, they’re in no rush to cut their benchmark rate despite their earlier projections that they would do so three times this year.

The report “pours cold water on the view that the faster readings in January and February simply represented the start of new-year price increases that were not likely to persist,” Kathy Bostjancic, chief economist at Nationwide, said in a research note.

“The lack of moderation in inflation will undermine Fed officials’ confidence that inflation is on a sustainable course back to two per cent and likely delays rate cuts to September at the earliest and could push off rate reductions to next year.”

On Wall Street, traders sent stock prices tumbling and bond yields rising, reflecting fear that the Fed may delay interest rate cuts indefinitely. The broad S&P 500 stock index was off about one per cent in late-morning trading.

Chair Jerome Powell has stressed that the Fed’s policymakers need more confidence that inflation is steadily slowing to their target level before they will support a rate cut. Lower rates could fuel faster growth and potentially push inflation higher.

Powell’s stance has elevated the profile of the monthly inflation data in determining when the Fed might start cutting rates. Lower rates would lead, over time, to reduced borrowing costs for businesses and consumers.

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The lack of moderation in inflation will undermine Fed officials’ confidence … and could push off rate reductions to next year.

KATHY BOSTJANCIC CHIEF ECONOMIST AT NATIONWIDE