The rise in American inflation could have an impact on the presidential election | Economic and commercial news

Wednesday's disappointing U.S. inflation data showed a jump from February, dampening expectations of an interest rate cut and raising concerns that inflation could remain stubbornly high.

This data has implications not only for the US Federal Reserve, which sets interest rates, but also for candidates in the upcoming presidential election.

The consumer price index (CPI), which excludes volatile food and energy costs, rose 0.4 percent in March from the previous month, according to government data released Wednesday.

The year-over-year rate remained unchanged at 3.8 percent. Including food and fuel, inflation is at 3.5 percent, compared to 3.2 percent in February.

Although inflation is well below the 40-year high of 9.1% reached in June 2021, when consumers went on a shopping spree with the distribution of government checks during the COVID-19 pandemic, it remains well below higher than the 2% target of the American central bank. percent.

The Fed has been on an interest rate hiking spree since March 2022, raising the benchmark overnight interest rate from near zero to the current range of 5.25% to 5.5%. , where it has been since July.

While that has helped curb inflation, data released Wednesday shows the fight is far from over.

The 0.4 percent m/m gain in core CPI in March was a disappointment, as it surprised on the upside compared to our and consensus expectations of a 0.3 percent increase for hundred. That won't please the Federal Reserve and could push more policymakers to favor two rate cuts this year, rather than three, Bernard Yaros, chief U.S. economist at Oxford Economics, told Al Jazeera.

The latest inflation data as well as last week's jobs data, which showed the U.S. economy added some 300,000 jobs last month, well above the expected 200,000 or fewer, sparked rumors that, with such a strong economy, there might be no rate cuts in 2017. 2024, said Matt Colyar, an economist at Moodys Analytics.

Inflation is moderating but occurring more slowly than expected, Colyar told Al Jazeera, adding that the situation makes Fed Chairman Jerome Powell's unenviable job all the more unenviable with the general election in November. .

The last meeting before the election will be in mid-September and Powell indicated the Fed is in no rush to cut rates.

Monetary policy is an inexact science and it takes time to produce its effects. But it is primarily a psychological effect that is being attacked, it is accompanied by the message that we have won the battle against inflation. That complicates things as the election approaches, he said.

If inflation remains above what the Fed considers satisfactory, or if employment and wage growth continue at a healthy pace, a rate cut is less likely.

But these are also signs of a strong economy and generally favor the incumbent, Colyar said.

This is the story of a truly strong and resilient economy, he said.

Singular focus on price

While this may be good news on paper, voters still believe the cost of living is too high.

Wages have been rising faster than inflation for a year now, Yaros said. Yet what people are seeing is that prices are 20 percent higher than they were when [Joe] Biden was inaugurated [as president in January 2020]and this focus on price levels is what is hurting the mood and Biden.

While the latest inflation data shows people are still consuming at a healthy rate, the average American now feels poorer because prices are higher.

And people look at prices in isolation and don't consider that their wages have also increased, Yaros said.

There is a particular emphasis on price, he said.

It's also because inflation is cumulative and builds up, said Dan North, senior economist at Allianz Trade.

For example, he said, while wages are about 15 percent higher than in January 2021, food is 21 percent more expensive, housing 31 percent and gasoline 41 percent.

On Tuesday, the National Federation of Independent Business (NFIB) said its small business optimism index fell 0.9 points to 88.5 last month, the lowest level since December 2012. was the 27th consecutive month where the index was below the 50-year average of 98.

A quarter of small business owners said inflation was their biggest concern, up two percentage points from February. The percentage of companies increasing their average prices increased by seven points.

People still remember that it used to cost them and their spouse $40 to dine at their favorite restaurant, and now it's $62. You don't remember the pay raises you got along the way, Colyar said.

All of this is bound to play a role in the election and be an important deciding factor in whether candidate Biden or opponent Donald Trump gets votes.

Yaros noted that people tend to hate high inflation much more than high unemployment.

Inflation affects everyone while unemployment affects only a small part of society, he said.

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