WASHINGTON — Major U.S. price and wage growth remained strong in March, leading the Federal Reserve (Fed) to likely raise its key rate for the 10th time since March of last year in a bid to to fight inflation.
The “core” inflation index, which excludes volatile food and energy prices watched closely by the Fed, rose 0.3% from February to March and 4.6% in course of the last 12 months.
These data are contained in the report of the Ministry of Commerce, published on Friday. The annual rate is still well above the Fed’s 2.0% target: some Fed officials are concerned that core inflation has barely come down from the 4.7% it reached in July.
Additionally, a Department of Labor report was released on Friday that workers’ wages and benefits rose 1.2% in the first quarter of this year, higher than the 1.1% increase in the last quarter. from last year. While this trend is good for workers, the Fed fears that companies will try to offset rising labor costs by further raising the prices of their goods and services, which will keep inflation high. .
In the first quarter of this year, wages rose 5.1% year-on-year, not adjusted for inflation, according to the Ministry of Labor, i.e. they remained at the same level as in the last quarter of 2022. The Fed says wage growth above 3.5% is too high to meet its inflation target of 2.0%.
Faced with rising prices and high interest rates, US residents have become more constrained in their spending. Consumer spending was flat in March for the second month in a row, as Americans sharply cut spending on cars, furniture and appliances while continuing to spend money on services, including utilities, restaurants and hotels.
However, there are also encouraging signs. Overall prices rose only 0.1% from February to March. This is the smallest increase since July of last year. On an annualized basis, inflation slowed to 4.2%, but this was largely due to lower gas prices, which are very volatile. However, this is the lowest annual headline inflation in nearly two years.
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