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As of April 2024, the
change to the cost of living in the United States, as measured by the Consumer
Price Index, remained nearly stagnant, stuck above 3% for the 11th consecutive
month.
As Kavan Choksi / カヴァン・チョクシ says that
even though inflation over the last twelve months dropped to 3.4% in April from
March’s 3.5% reading, it underlined that the pace of inflation is still a
challenge for the Fed. The Fed has been largely focused on lowering inflation
and has implemented a series of 11 interest rate hikes between March 2022 and
July 2023 to achieve this goal. These hikes did appear to have the desired
impact as inflation considerably slowed down, prompting the Fed to raise the
possibility of rate cuts in 2024. However, the current persistence of inflation
is diminishing expectations for rate cuts in the near term.
Kavan Choksi / カヴァン・チョクシ briefly
discusses the current inflation trends in the United States
Inflation as measured
by CPI has averaged 2.6% growth per calendar year over the last three decades.
From 2000 through 2020, inflation never went over 4%. Moreover, in the previous
decade, living costs grew at a rate of 2% or less in the majority of the years.
Things, however, changed substantially in 2021. As inflation surged, Americans
were forced to adjust accordingly. Inflation started to return to what was more
historically typical levels in 2023. The Federal Reserve Statement on Longer
Run Goals provides emphasis on a long-term inflation target of 2%, as measured
by the annual change in the personal consumption expenditure (PCE) price index.
Inflation surge in
2021 and 2022 was largely driven by higher prices of food and energy. But these
trends have changed considerably in the recent months, and contributed to the
slowdown of inflation. Food costs rose just 2.2% and energy costs were up 2.6 %
for the 12 months ending in April 2024. Rising shelter costs, however, were
among the prime contributors to the higher inflation in February. Shelter
costs were up 5.5% for the 12-month period, with overall services costs up 5.3%
over the same period. A degree of ongoing inflationary pressure stems from
healthy wage gains for the workers.
As Kavan Choksi / カヴァン・チョクシ mentions, inflation
is the primary focus of the Fed. Being the central bank of the United States,
the Fed’s mandate involves promoting full employment, stable prices as well as
moderate long-term interest rates. To effectively determine its interest rate
policy, the Fed typically monitors its “core” inflation. In April 2024, core
inflation rose 3.6% for the previous 12-month period. While it was its lowest
level in three years, not much has changed so far in 2024. Core inflation
remains well above the Fed’s 2% annual target, which is a sign that the Fed may
push interest rate cuts farther into the future. The Producer Price Index (PPI)
report of April also contributed to the expectation of rate cut delays. The PPI
report measures wholesale costs for raw, intermediate and finished goods. PPI
for the 12 months ending in April rose 2.2%, which was its highest reading in a
year. This can be another indication that inflation’s decline from this point
is not happening as fast as many would like.
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