When measured against prices a year ago, inflation has been easing for eight months.
In February, consumer prices climbed 6% from 12 months earlier, down from January’s 6.4% year-over-year increase and well below a recent peak of 9.1% in June. Yet it remains far above the Fed’s 2% annual inflation target. Core prices in February rose 5.5% from 12 months ago, down slightly from 5.6% in January.
Air fares, after easing for several months, soared 6.4% just in February and are up 27% from a year ago. The Fed is heavily focused on services, which are labor-intensive and whose price increases are driven in large part by higher wages. Labor shortages in many services industries have led to sharp wage increases.
The price of eggs, which have soared 55% from a year earlier, actually dropped 6.7% just in February. Jan Hatzius, chief economist at Goldman Sachs, said Goldman now thinks the Fed’s policymakers will pause their rate increases next week. Goldman had previously predicted a quarter-point hike. In a note to clients, Hatzius noted that the Fed, for now, appears even more focused on calming the banking sector and the financial markets than on fighting inflation.
The Fed may get some unintentional help in its inflation fight from the aftereffects of the collapse of Silicon Valley Bank and New York-based Signature Bank. In response, many small and medium-size banks may pull back on lending to shore up their finances. A lower pace of lending could help cool the economy and slow inflation.
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