Inflation pressures remain persistent as consumers pull back -
An index that is closely followed by the Fed, which excludes volatile food and energy costs to capture “core” inflation, rose 0.3% from February to March and 4.6% from a year earlier, according to a report Friday from the Commerce Department. That is still far above the Fed’s 2% target rate. Some Fed officials are concerned that core inflation hasn’t declined much since reaching 4.7% in July.
The latest inflation figures point to the dilemma confronting officials at the Federal Reserve: Across the economy, price increases for many goods have slowed significantly. And some previous drivers of inflation, notably clogged supply chains, have eased. Yet prices for many services, including restaurants, auto insurance and hotel rooms, are still surging, fueled by greater demand from consumers who in many cases have enjoyed rising wages.
“We need job growth to slow much more quickly than it currently is,” said Ryan Sweet, chief U.S. economist at Oxford Economics, a consulting firm. “And until we start to see signs of that, I think the Fed is going to err on the side of doing too much.” And some chronic drivers of inflation moderated last month. Rental costs grew 0.5% in March, down from 0.8% in February. Soaring rental costs have been a major contributor to higher inflation since the pandemic struck. Yet real-time data show rental costs declining as more apartments have been built, suggesting that housing price growth should continue to slow.
The PCE price index also seeks to account for changes in how people shop when inflation jumps. As a result, it can capture emerging trends — when, for example, consumers shift away from pricey national brands in favor of less expensive store brands.
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