A measure of inflation that the Federal Reserve relies on to set interest rate policy rose in February to an annual rate of 5.4%, from 5.2% in January, the Bureau reported Thursday. of Economic Analysis.
The personal consumption expenditure index, excluding the often volatile food and energy costs, rose 0.4% for the month, down from 0.5 in January. The overall index rose 0.6% for the month, down from 0.5%.
The base rate was slightly below expectations of 5.5%, following January’s 5.2% hike, but well above the Fed’s stated target of an annual average of 2%. This is why the central bank recently embarked on a cycle of interest rate hikes aimed at bringing inflation down.
The most commonly tracked consumer price index is running at an annual rate of 7.9%.
Inflation surprised most economists and the Fed, driven initially by a strong rebound from the economic effects of the coronavirus pandemic but exacerbated by the arrival of the omicron variant and then the Russian invasion of Ukraine last month.
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But some analysts worry that a Fed catch-up could overshoot and hurt the economy.
Linda Duessel, senior equity strategist at Federated Hermes, told a recent policy roundtable hosted by the company, “Inflation is just too high and we have this conflict which is only making it worse.”
“And my understanding is that the Fed being in its attempt to get things under control, it always goes too far,” Duessel added. “They are the ones who are throwing us into recession.”
Much of the price increase is related to the surge in the price of oil. Russia is a major oil producer and uncertainty over global supplies has pushed the price per barrel up to around $125.
Oil retreated somewhat on Thursday following reports that President Joe Biden planned to release 180 million barrels of oil from the country’s strategic petroleum reserve over the next few months. International benchmark Brent crude fell more than 5% to $107 a barrel.
While the releases may temporarily offer some relief from rising gas prices, they are unlikely to make much difference in the long term as oil supply is limited relative to demand. OPEC+, a group of the world’s major oil producers, met on Thursday and agreed to slightly increase production to 432,000 barrels from May 1.
Another important factor in the inflation picture is the extremely tight labor market. Private payroll company ADP reported Wednesday that employers added 455,000 jobs in March, and the Department of Labor will release job growth data for March on Friday, with analysts expecting a strong figure.
“We expect another big gain with job creation of 450,000 to 500,000,” Dan North, senior economist at Allianz Trade North America, wrote on Wednesday. “Last month the economy had recovered 90% of all lost jobs, so this month should get us closer to 92% to 93%.”
North noted that the leisure and hospitality industries, which have suffered the brunt of job losses from the pandemic, have accounted for more than a third of jobs recovered, but still have some way to go as travel and vacations begin to resume.
“We expect to continue to see gains in leisure and hospitality as more COVID restrictions are lifted, and the industry still has some way to go, having recovered only 81% of lost jobs,” did he declare.
Separately, the number of Americans filing for first-time unemployment benefits rose to 202,000 from a revised 188,000 the previous week.
The four-week moving average was 208,500, down 3,500 from the previous week.