Inflation pressures eased modestly in March, driven by weakness in energy prices. The Consumer Price Index ticked down 0.2%, while the one-year change in the CPI slowed sharply from February to 1.5%. Excluding food and energy, core prices edged higher by 0.1%. The one-year change in core CPI, at 1.9%, was fractionally below the February result.
Oil and gasoline prices spiked temporarily earlier this year, but have since given some of that increase back. Energy prices have now declined in four of the last five months, and are down 1.6% over the past year. Against the backdrop of a lackluster global expansion, commodity prices have been largely held in check. The near-term outlook for global growth is still murky, suggesting that commodity pricing is also likely to remain range-bound.
Despite the Fed’s aggressive steps to suppress interest rates and stimulate growth, the expansion remains tepid and inflation pressures remain at bay. Coupled with the largely disappointing jobs report for March, the Fed is well-positioned to continue to pour gasoline on the fire. Although indications that there has been more focused discussion within the central bank about its exit strategy have prompted investor concern, there is little reason to believe that any tightening by the Fed is imminent.
In two weeks, the FOMC will reconvene to reevaluate economic conditions and policy. The combination of a somewhat more restrictive fiscal policy and the recent economic soft patch should provide the impetus for the Fed to maintain its highly accommodative stance.
Recent economic releases suggest the U.S. economy may be in the midst of yet another spring soft patch. With most of Europe already in recession, other developed nations showing signs of slowing, and growth in China recently falling short of expectations, the primary risk still appears to be tilted toward slower growth, not higher inflation.
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