The latest consumer price data dominated what was an otherwise light week in terms of fresh economic data. Inflation data have taken on increased importance as we all try to predict when the Federal Open Market Committee (FOMC) will embark on its highly-anticipated easing cycle. This week's data tell us, it may be awhile.
The Consumer Price Index (CPI) came in hot in March, rising 0.4% at both a headline and core level (once we strip out food and energy prices). As seen in the nearby chart, the three-month annualized rate of the core CPI climbed to 4.5%, an indication price growth accelerated in the first quarter. Core goods deflation returned in March, but core services inflation remains stubborn. The descent in shelter costs remains painstakingly slow as the real-time measures take time to show up in the CPI data. Primary shelter inflation rose 0.4% in March, while core services ex-housing was also hot, up 0.6%, amid gains in medical services as well as motor vehicle insurance and maintenance.
We suspect the first quarter acceleration in core CPI reflects the often-choppy nature of monthly price movements and is a “bump” in the road back toward the Fed's inflation target, rather than a sign that slowing inflation is reversing course. But bumps still slow the journey, and we're not yet there in terms of Fed easing.
While we expect inflation to trend lower as the year progresses, it is still a problem today. Inflation was reported as the single most important problem faced by small business owners in March. In addition to elevated cost pressure, dwindling sales expectations and challenges finding qualified labor pushed small business sentiment to its lowest level since 2012 last month. But input price pressure is showing signs of easing as the Producer Price Index (PPI) showed a bit more improvement than the CPI in March, rising just 0.2%, or the slowest in three months. The PPI data still suggest the core PCE deflator, the Fed's preferred measure of consumer price inflation, will also show stalled progress in reducing inflation (data released April 26). Ultimately consumers still face rising prices. Year-ahead consumer inflation expectations rose to 3.1%, while expectations 5-10 years out hit 3.0% in early April. Despite hitting the highest level in six months, as seen in the nearby chart, long-term expectations are still consistent with its recent range and will be considered "anchored" by the Fed.
Overall, the latest data push out the timing and degree of Fed easing this year. We now expect the FOMC to first cut the fed funds rate by 25 bps at its Sept. 18 policy meeting followed by 25 bps rate cuts at every other FOMC meeting through the end of next year. This means just 50 bps of total easing in 2024 followed by another 100 bps of easing in 2025, which puts the target range for the fed funds rate at 3.75%-4.00% at year-end 2025. For our full economic forecast, please see our latestMonthly Economic Outlook published this week.
This Week's State Of The Economy - What Is Ahead? - 23 October 2020
Wells Fargo Economics & Financial Report / Oct 24, 2020
A recent strong report from the National Association of Homebuilders set the tone for another round of strong housing data. The NAHB index rose two points to a record high 85.
The Regional Breakdown Of A Labor Market In Meltdown
Wells Fargo Economics & Financial Report / May 26, 2020
Employment fell in all 50 states and 43 states saw their unemployment rate rise to a record in April. The damage is already hard to fathom-a 28% unemployment rate in Nevada and still another month of job losses ahead.
This Week's State Of The Economy - What Is Ahead? - 02 July 2020
Wells Fargo Economics & Financial Report / Jul 04, 2020
It was a mildly busy week for foreign economic data and events, while global COVID-19 cases continued to rise.
This Week's State Of The Economy - What Is Ahead? - 23 December 2020
Wells Fargo Economics & Financial Report / Dec 26, 2020
Vaccines are here, but they are not yet widely available in a way that can stem the spread of a disease that grows by 200K a day.
This Week's State Of The Economy - What Is Ahead? - 29 January 2021
Wells Fargo Economics & Financial Report / Feb 09, 2021
Economic data came in largely as expected this week and suggest continued economic recovery.
This Week's State Of The Economy - What Is Ahead? - 29 May 2020
Wells Fargo Economics & Financial Report / May 30, 2020
The beginning of this week saw some optimism that the economic downturn could be relatively short-lived, but data through the rest of the week provided grim reminder of the economic damage from COVID-19.
This Week's State Of The Economy - What Is Ahead? - 17 December 2021
Wells Fargo Economics & Financial Report / Dec 21, 2021
7 Interest Rate Watch for more detail. In other news, retail sales data disappointed as higher prices factor into spending and industrial activity continued to recover but remains beset by supply issues.
This Week's State Of The Economy - What Is Ahead? - 14 October 2020
Wells Fargo Economics & Financial Report / Oct 14, 2020
The global mobility playing field is equalizing. Major European countries such as Germany and France have seen a slowdown in recent weeks, leaving them right in line with the United States relative to the January baseline.
This Week's State Of The Economy - What Is Ahead? - 20 January 2023
Wells Fargo Economics & Financial Report / Jan 20, 2023
The housing sector has borne the brunt of the Fed\'s efforts to slow the economy, and this week\'s data showed the industry continues to reel.
This Week's State Of The Economy - What Is Ahead? - 04 June 2021
Wells Fargo Economics & Financial Report / Jun 08, 2021
The CDC\'s relaxation of its mask mandate occurred mid-May, and as data for that month begins rolling in this week, it is evident there is no lack of demand. Supplies, on the other hand, are a worsening problem.
