Inflation at its lowest for a year and a half in the United States

Inflation continues to slow in the United States, and fell in February to its lowest level for almost a year and a half, but the Fed, responsible for combating this rise in prices, is now under pressure with the bankruptcy of the SVB bank.

Consumer price inflation stood at 6.0% year on year in February, as expected, against 6.4% in January, according to the CPI index published 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%, again in line with analysts’ expectations, after rebounding in January.

“CPI inflation recorded the expected improvement, but core inflation was stronger than expected,” commented Rubeela Farooqi, economist for HFE.

Indeed, so-called core inflation, which excludes food and energy prices, rose 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.

Housing prices are those that continue to climb the most, “representing more than 70% of the increase” over one month, details the Department of Labor in its press release.

Food, leisure and furniture also contribute to this still strong inflation.

Good news however, energy prices, which had soared in the spring of 2022 due to the war in Ukraine, continue to decline, and are down 0.6% compared to January, but up 5.2 % over one year.

– Bankruptcy of SVB –

It is the American central bank (Fed) which is responsible for curbing this inflation, which, despite this new slowdown, remains very high.

The Fed favors another measure of inflation, the PCE index, which it wants to bring back to around 2% but was on the rise again in January, to 5.4% over one year.

Its main tool is to raise its rates, which increases the cost of credit, in order to encourage households to consume less. This should ultimately ease the pressure on prices.

Jerome Powell before a Senate committee in Washington on March 7, 2023 (AFP – Mandel NGAN)

Fed Chairman Jerome Powell had warned just a week ago that the institution could tighten its monetary policy more than expected, due to this excessively high inflation, driven by unabated consumption and a market still tight employment with a persistent lack of workers.

But the bankruptcy of the Californian bank SVB and the turbulence in the banking sector, caused in part by the sharp rate hikes decided by the Fed over the past year, could change the situation.

The markets were expecting the Fed to decide, at its next meeting on March 21 and 22, on a sharp hike in rates, of half a percentage point, even going up again compared to the previous one. meeting.

The headquarters of Silicon Valley Bank in Santa Clara, California, on March 13, 2023 (AFP - NOAH BERGER)
The headquarters of Silicon Valley Bank in Santa Clara, California, on March 13, 2023 (AFP – NOAH BERGER)

They would now not be surprised if the Fed finally decides not to raise its main key rate at all.

The inflation figures plead, according to Rubeela Farooqi, for a modest rise in rates, of a quarter of a percentage point, as at the previous meeting.

“However, the decision will ultimately depend not only on economic data, but also on financial stability concerns,” she said.

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