US Inflation Subsides as Fed Wraps up Policy Meeting

Summary

  • Lucia Mutikani reported that the labor department’s report on Wednesday was consistent with a sluggish manufacturing sector, offering hope of further subsiding inflation.
  • Federal Reserve officials wrapped up their meeting on Wednesday, with the central bank expected to maintain its policy rate at its current 5.25%-5.50% range, having hiked it by 525 basis points since March 2022.
  • Goods prices remained unchanged in November as energy products’ cost dropped and food prices rebounded. Energy costs declined, pulled down by a significant decrease in gasoline prices.
  • Though inflation remains above Fed’s 2% target, price increases are becoming less broad-based. Economists believe that the central bank is through with rate hikes this cycle, and the markets are anticipating a rate reduction by May.

According to a recent report from the Labor Department, the manufacturing sector continues to underperform. However, indicators suggest that overall inflation is expected to slow down.

At the conclusion of their meeting on Wednesday, Federal Reserve officials were leaning towards maintaining their current policy rate in the range of 5.25%-5.50%. With a 525 basis points increase since March 2022, reducing the inflation rate is a top priority to avoid a hard landing for the economy.

There is no discernible inflation at the producer level, which increases the likelihood of a soft landing,” Chief Economist Christopher Rupkey of FWDBONDS in New York opined.

Despite a 1.2% decrease in energy products’ cost, goods prices remained unchanged for November—attributed to a 0.6% rebound in food prices. A 1.4% drop was experienced in goods prices in October.

A surge in the wholesale price of eggs by 58.8% was the boost behind food prices in November. There was also an increase in prices for fresh fruits and melons.

Energy Costs and Projections

Energy costs fell due to a 4.1% decrease in gasoline prices, along with reductions in jet fuel and liquefied petroleum gas prices. Energy costs had further decreased by 6.7% in October.

In the year ending November, the Producer Price Index (PPI) went up by 0.9% after a 1.2% increase in October. Despite inflation surpassing the Fed’s 2% target, price increments are now less widespread.

Excluding volatile food and energy components, goods prices slightly rose, and the cost of services remained unchanged. Despite lower costs on transportation and warehousing services, wholesale prices for hotel/motel rooms saw a 4.0% increase.

Considering that some of the components used in the calculation of the personal consumption expenditures price index include portfolio management costs, hotel and motel accommodation, components stripped-out measures of PPI edged up slightly.

In November, the controlled measure of PPI, excluding food, energy, and trade services components, rose slightly to 0.1% after a similar margin increase in October.

In terms of impact on Forex or trading, investors should monitor these economic indicators and inflation rates to anticipate market shifts. Any significant changes could potentially affect assets like currencies, commodities, and equities.

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