Shoppers are seen at a Kroger supermarket in Atlanta on October 14, 2022.
Ilya Nouberge | AFP | Getty Images
Inflation is down from its hottest point in 2022, but remains mild given the Federal Reserve’s 2% inflation target. Americans’ optimism about the economy has improved, but many still say rising prices are causing financial hardship. Recent Gallup Poll round.
Mark Hamrick, senior economic analyst at Bankrate, said February’s monthly increase was primarily due to increases in gasoline and housing. However, food prices overall remained flat during the month.
Macquarie head of economics David Doyle said there was progress towards year-on-year declines in headline and core inflation, pointing to soaring petrol and housing prices, but that progress would stall to some extent in the short term. He said it was possible.
“There is still much to fight in the fight against inflation,” Mr Doyle said. “And it will take some time before everyone declares victory.”
Certain items are seeing double-digit price increases year-over-year, including juices and beverages up 27.2% and car insurance up 20.6%.
Motorists also objected to the increase in vehicle repair costs (up 8.5% year-on-year). Meanwhile, gasoline prices fell by 4.2% compared to the same month last year, but rose by 4.1% for the month.
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Certain consumer services, such as admission to sporting events and tax return preparation, increased by 11% and 9.8%, respectively.
CPI inflation has subsided from a peak of 9.1% in 2022. Real wages are trending upwards, Hamrick said, meaning people see their wages as adjusting for inflation.
But inflation is up a total of 20% compared to before the pandemic, Hamrick said. So while higher wages will restore some of the lost purchasing power, it won’t fully replace it, he said.
“There’s still a sense that we lost something because we really lost purchasing power during that transition,” Hamrick said.
The unemployment rate, one of the key indicators that the economy is doing well, has remained below 4% for the longest period since the 1960s, he said.
But the job market may not feel as strong for those who have been laid off as companies cut thousands of jobs in recent months. Similarly, inflation can hit some people harder than others. Those experiences tend to shape the way people view the economy, Hamrick said.
Doyle said an economic upswing is not good for consumers and said it could take longer for the Federal Reserve to start cutting interest rates.
“That doesn’t mean we’re not still in a disinflationary process,” Doyle said.
One of the factors that influences how Americans perform, for better or for worse, is interest rates.
When it comes to savings, you have the chance to earn some of the best cash returns in years. However, those with debts such as credit cards or mortgages are likely to face rising costs due to their outstanding balances.
The Fed is expected to cut rates this year after a series of rate hikes aimed at curbing inflation. However, a rate cut at the central bank’s March meeting is likely to be premature.
“I don’t think there’s any immediate pressure on the Fed to lower interest rates,” such as a recession or a spike in unemployment, Doyle said.
He said the Fed wants to see evidence that its efforts to combat inflation are complete before cutting rates.
“I’m somewhat skeptical that the Fed will be able to reach its goal in the coming months,” Doyle said.
Macquarie expects the first rate cut could come in July, bringing the total to two cuts this year of 50 basis points. The company also projects a total reduction of 50 basis points in 2025.
Hamrick said the rate cut would help borrowers, especially those who are currently relying more on credit cards.
