Mar 12, 2024 - Economy

Not so fast: Progress in the fight against inflation may be stalling

Illustration of quarter with a pause icon cut-out

Illustration: Eniola Odetunde/Axios

No one said getting inflation back to 2% would be easy. For the second straight month, the Consumer Price Index flashed signals that the 2023 disinflation trend may have stalled out at the start of 2024.

Why it matters: If elevated inflation readings in January and February persist through the spring, it will raise doubts about the economic narrative that has taken hold on Wall Street and in policymaking circles — that inflation has been quashed and interest rate cuts are on the near horizon.

By the numbers: Both headline CPI and the core measure that excludes energy and food costs rose 0.4% on a monthly basis, another big gain after a streak of milder increases late last year, according to data out Tuesday.

  • Over the last three months, core CPI rose an annualized 4.2%. In August, that number was 2.6%.

The intrigue: Key trends that had fueled disinflation last year retreated in February.

  • Gasoline prices surged last month: After four consecutive months of declines, the energy index rose 2.3% — a main factor pushing up overall CPI. Of course, prices at the pump can whip around from month to month, but the increase is a reminder that commodity prices can go up as well as down.
  • Tailwinds from normalizing supply chains helped cool prices for goods, though some economists questioned how much further that had to run. For the first time since May, goods prices excluding food and energy rose, though the increase was slight (0.1%).

What to watch: The services side of the economy remains especially troubling, including fast-rising insurance prices.

  • Plus, shelter prices have long been expected to reflect the more benign increases shown in private-sector data — but they showed only slight signs of cooling. The index rose 0.4%, down from the 0.6% gain in January.
  • That component alone is responsible for roughly two-thirds of the 12-month increase in core CPI.
  • "Like a piece of gum stubbornly stuck to the bottom of their shoes, sticky services inflation is a problem that the Fed just can't shake," Jason Pride, chief of investment strategy and research at Glenmede, wrote in a note.

The bottom line: The data validates some of the caution expressed by top Fed officials about cutting interest rates.

  • Inflation hasn't kept cooling in the manner that many had hoped. Meanwhile, the economy still looks solid, with more moderate job gains — a combination that may allow the Fed to postpone any cuts until the summer.
  • "Inflation progress has slowed. We'll continue to see the Fed committed to getting it down. This means rates will stay high for the foreseeable future," NerdWallet analyst Elizabeth Renter wrote.
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