US inflation rose much less rapidly in March than it did the previous month. While inflation was still 6% in February, it was 5% in March. The inflation rate is cooling down mainly due to falling food and energy prices. “Excluding food and energy, the figure was disappointing,” says domestic economist Han de Jong. However, according to him, this inflation figure was better than expected.
If food and energy prices were omitted, “inflation would even have risen slightly,” says De Jong. So core inflation in the US increased in March. According to De Jong this is mainly due to rents, which weigh heavily on that figure.
“Rental growth is still accelerating,” said the economist. ‘Rental inflation’ has now risen to 8.2%. At the same time, house prices are falling. Rents lag US home prices by a significant lag.’
According to De Jong, this indicates that “rent inflation” will also soon decline, and with it core inflation. The core inflation rate is an important advisor to the Federal Reserve (Fed).
Enthusiastic about the market
Inflation data has a big influence on the Fed’s interest rate policy, which is supposed to keep inflation in check. This leveling of inflation could prevent further increases in interest rates. Current inflation and core inflation are still well above 2%, which is the US central bank’s target.
“Capital market interest rates fell immediately in a sharp movement, within minutes.”
However, De Jong saw the market react “enthusiastically” to today’s inflation figure. He suspects that investors initially thought the Fed would actually moderate interest rate hikes a bit, or stop altogether. ‘Capital market interest rates fell to 0.1% soon after the number was released. This is a big move, in minutes.’
Bad news
Meanwhile, De Jong sees oil prices rising again. “We can’t wait to do it,” he says. If oil prices continue to rise, the whole inflation process will start all over again. That would be bad news.”
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
