Thursday, March 28, 2024 | Ramadan 17, 1445 H
broken clouds
weather
OMAN
23°C / 23°C
EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

Two per cent inflation: A call to action in America

937918
937918
minus
plus

BRUSSELS: US President Donald Trump’s address to Congress may make the most headlines, but inflation readings of 2 per cent could prove more significant economic events next week — a call to action perhaps in America and a important milestone in Europe.


The US consumer price index (CPI), published mid-Feb, has already shown prices rising at their fastest monthly pace in nearly four years in January and a year-on-year rate of 2.5 per cent.


However, the Fed has often emphasised the inflation measure for personal consumption expenditures (PCE) because of its wider range of goods and services.


And that too is now seen climbing to 2 per cent on its release on Wednesday.


Rob Carnell, Chief International Economist at ING, sees the release as pivotal, nudging more Federal Open Market Committee members, who next meet on March 14-15, to favour action as the excuse of low inflation disappears.


“Their target inflation measure is hitting their longer-run objective and at that point, everybody should be waking up and saying: You know what, March is a live month,” he said.


In a Reuters poll of primary dealers earlier this month, none expected the next rate hike to occur before the second quarter.


According to minutes released on Wednesday, many Federal Reserve policymakers said it may be appropriate to raise interest rates again “fairly soon”, taken by markets as implying a reduced chance of a March hike.


“The only thing they can point to is all the uncertainty around Trump.


Well, the only uncertainty is how much stimulus he’s going to deliver,” said Carnell.


Trump will address Congress in a speech on Tuesday expected to include some details of his infrastructure spending and tax plans, which could include a new border tax on imports.


By contrast, the European Central Bank, whose Governing Council next meets on March 9, will more easily brush aside an inflation rate of 2.0 per cent, the market consensus for February, with a core rate, excluding more volatile energy and unprocessed food components, seen stubbornly below 1 per cent.


Headline inflation in any case is unlikely to spiral higher.


Fabio Fois, European economist at Barclays, sees a “twin-peak” profile, with highs in April and September, boosted by rising airline, holiday, energy and food prices, before receding towards the core level of around 1.2-1.3 per cent by the end of 2018.


If inflation fails to spur central banks, what of its effect on consumers, the main drivers of growth in Europe and the United States?


US consumer sentiment is seen easing further from December’s 15-year high, with stock markets more subdued after initial euphoria following Trump’s election victory.


The February figure due on Tuesday will give a first consumer assessment of Trump’s turbulent first month in office and his possible impact on the economy.


For the time being, rising inflation is not biting. — Reuters


SHARE ARTICLE
arrow up
home icon