As US inflation rises again, it could impact the presidential elections | Business and economic news

Wednesday’s “disappointing” US inflation data showed a jump from February, dampening expectations of a cut in interest rates and raising concerns that inflation could remain stubbornly high.

The data has implications not only for the US Federal Reserve, which sets interest rates, but also for candidates in the upcoming presidential elections.

The core consumer price index (CPI), which excludes volatile food and energy costs, rose 0.4% in March from the previous month, according to government data released on Wednesday.

The annual rate remained unchanged at 3.8%. Including food and fuel, inflation is at 3.5 percent, up from 3.2 percent in February.

Although inflation is much lower than the 40-year high of 9.1% reached in June 2021, when consumers made purchases with government checks delivered during the COVID-19 pandemic, it is still well above the inflation target. US central bank 2 percent.

The Fed has been on a wave of interest rate hikes since March 2022, raising the benchmark overnight interest rate from near zero to the current range of 5.25% to 5.5%, where it has been since July.

While this has helped dampen inflation, Wednesday’s data shows the fight is far from over.

“The 0.4% m/m gain in March core CPI was a disappointment as it surprised positively relative to our expectations and the consensus of a 0.3% increase. This will not please the Federal Reserve and could lead more policymakers to favor two rate cuts this year rather than three,” Bernard Yaros, chief US economist at Oxford Economics, told Al Jazeera.

The latest inflation data, as well as last week’s employment data – which showed the US economy added about 300,000 jobs last month, well above the expected 200,000 or less – have sparked rumors that with such a strong economy , there may not be any rate cuts at all in 2024, said Matt Colyar, an economist at Moody’s Analytics.

“Inflation is moderating, but happening more slowly than we anticipated,” Colyar told Al Jazeera, adding that the situation is making Fed Chairman Jerome Powell’s “unenviable job even more unenviable with the election.” November General”.

The last meeting before the election will be in mid-September and Powell indicated that the Fed is in no rush to cut rates.

“Monetary policy is an inexact science and takes time to come into effect. But it is a psychological effect – this first cut sends the message that we have won the battle against inflation. This complicates things so close to the elections,” he said.

If inflation remains higher than what the Fed considers satisfactory, or if job and wage growth continues at a robust pace, a rate cut is less likely.

But these are also signs of a “strong economy” and that typically favors the incumbent, Colyar said.

“It’s the story of a really robust and resilient economy,” he said.

‘Singular focus on price’

While this may be good news on paper, voters still consider the cost of living too high.

“Salaries have been rising faster than inflation for a year,” Yaros said. “However, what people look at are prices – prices are 20 percent above where they were when [Joe] Biden was inaugurated [as president in January 2020]and this focus on price levels is what is hurting the mood and Biden.”

Although the latest inflation data shows that people are still consuming at a healthy rate, the average American today feels poorer because prices are higher.

“And people look at prices in isolation and not that their wages have also gone up,” Yaros said.

There is a “singular focus on price,” he said.

This is also because “inflation is cumulative and builds up,” said Dan North, senior economist at Allianz Trade.

For example, he said, although wages are about 15 percent higher than they were in January 2021, food is 21 percent more expensive, housing 31 percent and gasoline 41 percent.

On Tuesday, the National Federation of Independent Business (NFIB) said its Small Business Optimism Index fell 0.9 points to 88.5 last month, the lowest level since December 2012. It was the 27th consecutive month that the index was below the 50-year average of 98.

A quarter of small business owners reported that inflation was their biggest concern, an increase of two percentage points from February. The percentage of companies that increased their average prices increased by seven points.

“People still remember it used to cost them and their spouse $40 to dine at their favorite restaurant and now it costs $62. You don’t remember the pay raises you got along the way,” Colyar said.

All of this will necessarily have an influence on the elections and will be an important deciding factor for which candidate – Biden or his opponent Donald Trump – will obtain votes.

Yaros noted that people tend to hate high inflation much more than high unemployment.

“Inflation affects everyone, while unemployment only affects a small part of society,” he said.