Banks were initially slow to raise their payouts as the Fed raised rates because they were awash in deposits. But those deposits have shrunk over the past year because inflation forced consumers and businesses to dip into their savings.
Firms saw new orders jump to the highest rate in 11 months, especially in the service sector. That allowed businesses to pass on higher costs to customers, resulting in the fastest jump in output prices in seven months.
Reading the inflation report, economists emphasized the need to stay cautious and not treat all sources of price hikes as equal.
Despite last month’s decline, food costs are still up more than 8% in the past year. And restaurant prices, up 0.6% from February to March, have risen nearly 9% from a year ago.
Companies from toothpaste makers to Chipolte are adding more premium items as they reach out to wealthier shoppers who are still spending freely even in the face of higher inflation.
Taken as a whole, Friday’s figures show that inflation pressures, though easing gradually, still maintain a grip on the economy.
Signs of a possible credit crunch in the United States had begun to emerge even before Silicon Valley Bank collapsed on March 10, raising worries about the stability of the financial system.
A significant driver of last month’s wholesale inflation slowdown was a huge drop in the prices of eggs, which plummeted 36.1% just in February. Egg prices had previously surged after a widespread outbreak of avian flu.
Even though prices are rising much faster than the Fed wants, some economists expect the central bank to suspend its year-long streak of interest rate hikes when it meets next week.
Nearly all of last month’s hiring occurred in services industries—from restaurants and hotels to retailers and health care companies.
Jerome Powell’s more nuanced remarks Wednesday appeared to be an effort to quell any assumption that the Fed has already decided to raise rates more aggressively based on a recent string of data that pointed to strong economic growth and still-high inflation.
Most economists and Wall Street investors had expected the Fed to carry out another quarter-point increase when it next meets March 21-22. But in recent days, traders have been pricing in a greater likelihood of a half-point increase.
U.S. central bankers are waging their most aggressive action against high inflation in a generation.
Here’s a closer look at the economy’s vital signs at a perplexing time of high interest rates, still-punishing inflation and surprisingly strong economic gains.
January’s price data exceeded forecasters’ expectations, confounding hopes that inflation was steadily decelerating and that the Fed could relent on its campaign of rate hikes.
Wholesale prices in the United States reaccelerated in January, indicating that inflation pressures continue to underlie the U.S. economy despite longer-term signs of improvement.
Tuesday’s consumer price report from the government showed that inflationary pressures in the U.S. economy remain high and are likely to fuel price spikes well into this year.
Jerome Powell’s remarks followed the government’s blockbuster report last week that employers added 517,000 jobs in January, nearly double December’s gain. The unemployment rate fell to its lowest level in 53 years, 3.4%.
The Fed’s latest move, though smaller than its previous hike—and even larger rate increases before that—will likely further raise the costs of many consumer and business loans and the risk of a recession.
Pay and benefits for America’s workers grew at a healthy but more gradual pace in the final three months of 2022, the third straight slowdown that could help reassure the Federal Reserve that wage gains won’t fuel higher inflation.
