USA: inflation higher than expected. The Fed must choose between politics and consistency
The economic data reserves a nasty surprise for the USA. The annual inflation rate in the United States rose to 3.4% in December 2023 from a five-month low of 3.1% in November, higher than the market forecast of 3.2%, as commodity prices energy dropped at a slower rate.
Energy costs fell by 2% (against -5.4% in November), with petrol falling by 1.9% (against -8.9%), the gas distribution service which was which fell by 13.8% (against -10.4%) and fuel oil which fell by 14.7% (against -24.8%).
Meanwhile, prices increased at a slower pace for food (2.7% vs 2.9%), housing (6.2% vs 6.5%), new vehicles (1% vs 1 .3%), clothing (1% vs 1.1%), medical care (4.7% vs 5%) and transportation services (9.7% vs 10.1%) and continued to decline for used cars and commercial vehicles (-1.3% vs -3.8%).
The annual core inflation rate fell to 3.9%, below the previous period's 4% but above expectations of 3.8%. Compared to November, consumer prices increased by 0.3%, the highest figure in three months and higher than forecast by 0.2%. Here is the graph with an annual horizon:
And here is inflation on a longer profile:
Now the ball is in the FED's court. Jerome Powell must decide whether to follow politics, that is, be influenced by Yellen, and therefore start lowering rates anyway, as the market expects, despite inflation being well above 2%, or follow the guidelines that the FED itself has been given and therefore do not lower rates yet, waiting a bit.
The first choice would facilitate the Biden administration on the eve of the elections, with a revival of the markets and economy. The second could be effective in combating the main cause of inflation, namely the still very high housing costs.
Let's wait for Powell's next statements.
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The article USA: inflation higher than expected. The Fed must choose between policy and coherence comes from Economic Scenarios .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/usa-inflazione-piu-alta-delle-attese-la-fed-deve-scegliere-fra-politica-e-coerenza/ on Thu, 11 Jan 2024 16:30:59 +0000.