What do rising gas prices mean for the future of US inflation? - Hindustan Times

What do rising gas prices mean for the future of US inflation? Here's what experts have to say

Mar 12, 2024 11:15 AM IST

Surging gasoline prices and potential impacts on US inflation take center stage.

A stubborn increase in gasoline prices would most likely have augmented inflation in the US to this level in February and even more so, which would favour the Fed's deliberation over adjusting the interest rate downwards.

Will February’s gas price surge propel US inflation even higher?(AP Photo/David Zalubowski, File)(AP)
Will February’s gas price surge propel US inflation even higher?(AP Photo/David Zalubowski, File)(AP)

According to the economists, food and beverages, restaurants, apparel, and petroleum-based products such as gas and heating fuels will have a 0.4 % price growth for the month, going slightly above the 0.3% increase in January.

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Take away food and fuel and core inflation with occer it will be up 0.3% stronger in compare with that of the last month.

Year-over-year figures are expected to reveal a 3.1% surge in headline inflation and a 3.7% climb in core inflation, as the Labor Department’s Bureau of Labor Statistics is set to publish its latest consumer price index findings on Tuesday at 8:announced at Sept. 30th at 08:00 AM ET. For January 2018, the corresponding year on year numbers were 3.1% and 3.9% respectively.

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After all, volatility in the inflation will be the key factor if the Fed decided not to decrease the rates in their upcoming meeting on March 12-13.

A 4% surge in February affects US inflation outlook

The Fed members’ tune started changing for the better in January, when the publication of the CPI data outpaced the market expectations, and the officials became more cautious about their future policy plans.

Sarah House, a senior economist at Wells Fargo, remarked in a recent note to clients, “While we do not expect the trend in inflation to re-accelerate this year, less clear progress over the next few months is likely to keep the Fed searching for more confidence that inflation is on course to return to target on a sustained basis.”

A dip in energy prices applied downward pressure on overall inflation figures earlier in the winter.

However, Wells Fargo’s estimates indicate a 4% rebound in energy services in February, leading to heightened prices at gas stations, where the cost of a regular gallon of gas has risen approximately 20 cents, or over 6%, from the previous month, according to AAA.

The bank also surmises that despite relaxed supply chain tensions and the impact of higher interest rates, goods prices have remained stable.

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House is taking some steps

On the positive side, House said spending cuts on transportation, medicine and other services helped keep inflation under control.

However, Wells Fargo has revised its year-over-year inflation forecast upward.

Bank economists now forecast 3.3% for core CPI for the full year, an increase from the previous forecast of 2.8%. Focusing on the Core Personal Consumption Price Index, which is the Fed's preferred measure, Wells Fargo is forecasting inflation of 2.5% for the year, up from the previous estimate of 2.2%, not Wells Fargo is the only institution that expects significant inflation.

The New York Fed's February consumer survey showed that while participants kept their one-year inflation forecast at 3%, their projections for three- and five-year outlooks quickly rose to 2.7% and 2.9%, respectively, all above the central bank’s 2% purpose.

While changes in gas prices can significantly affect monthly survey results, expectations for gas price increases were relatively low. The Atlanta Fed’s “sticky price” inflation metric remained flat at 4.6% annually in January. This signal prioritizes things like housing and insurance, and Fed officials hope that reducing year-round accommodation rates will ease some of the pressure on cost-of-living measures.

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On Thursday, the BLS is scheduled to disclose the February producer price index, which assesses the wholesale prices that producers receive for their goods and services. These two indices will be the final pieces of inflation data that the Federal Open Market Committee will review before its next meeting.

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