Fed not ready to declare mission accomplished on inflation

Fed not ready to declare mission accomplished on inflation

Fed not ready to declare mission accomplished on inflation

US inflation in March hit the Federal Reserve's 2-percent goal for the first time in a year, indicating inflation pressure building up.

Figures released Monday by the U.S. Commerce Department showed the personal consumption expenditures (PCE) price index jumped 2% year-on-year in March.

Purchases rose 0.4 percent from the prior month, the Commerce Department figures showed - but consumer spending grew at a 1.1 percent annualized rate between January and March, which was the slowest in almost five years.

Outgoing New York Fed President William Dudley told CNBC on April 16 the central bank might have to alter its strategy of gradual rate increases "if inflation were to go above 2 percent by an appreciable margin". Some Fed officials pointed to one-off or transitory factors, such as a sharp decline in the price of cellular-service plans last spring, which they expected would be temporary.

Excluding volatile food and energy costs, prices rose 0.2% in March, in line with economists' expectations.

In addition to the good inflation data, household consumption also stepped up growth pace in March.

The uptick in inflation won't knock policymakers off their path of gradual increases in interest rates, although it will eventually prompt them to pencil in four hikes for this year instead of the three now forecast, said Peter Hooper, chief economist for Deutsche Bank Securities in NY.

They are scheduled to meet for two days starting on Tuesday and are expected to leave interest rates unchanged in the current range of 1.50-1.75 percent. Market investors are expecting that the central bank might raise interest rates by a total of four times this year. The so-called real consumer spending fell 0.2 percent in February.

Inflation by that measure was last above 2% in February of past year. The Fed raised rates last month and forecast at least two more rate hikes for this year. Personal income increased 0.3 percent in the month, the same growth in the previous month.

Factory activity in Texas accelerated sharply in April, with the Dallas Fed Texas Manufacturing Outlook Survey's production index surging 11 points to a reading of 25.3. The National Association of Realtors said contracts to buy previously owned homes rose 0.4 percent in March, slowing from February's 2.8 percent increase.

Related news