(Washington) Inflation continues to slow in the United States, falling in February to its lowest level in almost a year and a half, but the Fed, responsible for combating this rise in prices, is now under pressure with the bankruptcy of SVB bank.
Consumer price inflation was 6.0% year on year in February, as expected, from 6.4% in January, according to the CPI index released Tuesday by the Labor Department.
This is its lowest level since September 2021, and its eighth month of slowdown in a row, after peaking at 9.1% in June.
In just one month, inflation also slowed, to 0.4% from 0.5%, after rebounding in January.
Inflation is now mainly due to housing prices. But also to those of food, leisure, or furniture.
But the price of eggs, whose surge had become symbolic of this episode of inflation, fell by 6.7% compared to January. And energy prices continued to fall, down 0.6%.
President Joe Biden welcomed the slowdown, assuring that he will continue “to work to reduce costs for hard-working Americans so that they have a little more breathing room at the end of the month”.
“As the challenges in the banking sector remind us, there will be setbacks along the way in our transition to steady and stable growth,” added the Democrat, already campaigning without saying so for 2024.
“Disinflationary process”
The bankruptcy of the Silicon Valley Bank (SVB) worries on a global scale, and made the markets waver on Monday. But confidence seemed to take over on Tuesday.
European stock markets gained more than 2% around 10 a.m. (Eastern time), reassured by inflation, while Wall Street opened higher.
“The bumpy disinflationary process is well underway and the current economic and financial situation could accelerate the momentum,” commented Gregory Daco, chief economist for EY Parthenon.
However, inflation remains very high.
And economists worry about so-called core inflation, which excludes food and energy prices, and to which the US central bank (Fed) “pays particular attention […] because it is a good indicator of the direction that future inflation will take,” underlines Ryan Sweet, economist for Oxford Economics.
However, it started to rise again over one month, to 0.5% against 0.4%. Over one year, however, it slowed to 5.5%, its lowest level since December 2021.
Fed ‘focused’ on inflation
And the Fed, responsible for fighting inflation with, in particular, rate hikes that increase the cost of credit and encourage consumption reduction, will find itself facing a major dilemma next week, at its next meeting. .
Its officials were planning to raise rates more than expected, in the face of inflation that is not slowing as much as desired. But the bankruptcy of the Californian bank SVB, caused in part by these sharp rate increases over the past year, risks changing the situation.
Gregory Daco thus anticipates “an intense debate between the cautious approach of maintaining the rate […] unchanged and the desire to continue efforts to fight inflation”, and opt for a modest increase, of a quarter of a percentage point, the pace most often used.
The Fed favors another measure of inflation, the PCE index, which it wants to bring back to around 2%, but which had started to rise again in January, to 5.4% over one year.
Although stress has increased in the banking system, the Fed is still ‘very focused on getting inflation under control’, but its officials ‘will also have to make sure they offer support and provide liquidity to the banking system’ , details Ryan Sweet.
“The decision will ultimately depend not only on economic data, but also on financial stability concerns,” according to Rubeela Farooqi, chief economist for HFE.
