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

Inflation continues to slow in the United States, falling in February to its lowest level for almost a year and a half, but the Fed, responsible for fighting 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 on 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.

Over one month only, inflation also slowed, to 0.4% against 0.5%, after a rebound 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 continue to decline, 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 2:00 p.m. GMT, 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 are worried about so-called underlying inflation, which excludes food and energy prices, and to which the American central bank (Fed) “pays particular attention (…) because it’s a good indicator of the direction that future inflation will take,” said 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 prudent approach consisting in keeping the rate (…) unchanged and the desire to continue efforts to fight against inflation”, and to opt for a modest increase, of a quarter percentage point, the rhythm most often used.

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.

Although stress has increased in the banking system, the Fed is still very focused on controlling inflation,” but its officials “will also have to ensure that 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,” said Rubeela Farooqi, chief economist for HFE.