ECB towards the cut in JuneFED at the window. A few days after the publication of the US Consumer Price Index for the month of March, what are the five main factors that the Fed will have to keep under observation in the coming months? He explains it Jeffrey Cleveland, Chief Economist at Payden & Rygel
FED, 5 key indicators under the lens
- Core CPI. Also in March, for the third consecutive month, the core CPI achieved an increase of +0.4% on a monthly basis. An isolated data point could have been interpreted as a pause or setback, but three consecutive data points indicate an upward trend, well above the Fed's target
- Gas prices. Energy prices and, in particular, gas prices (+1.1% in March), were decisive for the rise in overall inflation. Although it does not represent a problem for the core data, which excludes from the basket the prices of the most volatile components such as food and, indeed, energy, the acceleration in gas prices is destined to put upward pressure on inflation expectations
- Housing services. With an increase of +0.4% in March, the component relating to housing prices continues to be among the main causes of the increase in the core CPI. Rents posted an increase of +0.4% in March, while property insurance increased by +0.5%. And in the last four months there has been no sign of slowing down.
- Consumer goods. After increasing by +0.1% in February, the prices of basic goods fell by -0.2% in March, helping to keep core inflation under control
- Core services. From healthcare to home insurance, core services recorded an increase of +0.5% in March (+0.6% net of the rental component): a notable increase, which had a hard impact on overall inflation .
In conclusion – we read in the analysis -. the price dynamics shownto an incompatible acceleration with a rate cut by the Fed and, at the moment, the data is not of any comfort.
What will the ECB do?
Obviously, the spotlight will also be on the next move of the European Central Bank. “If the data continues to move in the direction of disinflation, progress will continue on the path we have adopted. We do not pre-commit to a particular path of rates, as it depends on the incoming data, but the direction is clear“. She stated it Christine LagardePresident of the European Central Bank (ECB), during the press conference following the Governing Council meeting, in which it was decided to keep key interest rates unchanged.
In particular, to a question about how higher-than-expected inflation in the United States can influence the Fed and consequently the ECB, he replied: “We are data-dependent, we are not Fed-dependent. Obviously what happens concerns us and will be included in the projections that will be prepared and published in June.”
We are not Fed-dependent
“I don't speculate on what other central banks do or can do – she added, when pressed on the topic – The consequences in terms of price stability, inflation and everything else must be considered and monitored very carefully, and considered in the projections, but we are not pursuing any particular level of exchange rates and I do not comment on this. There are many channels through which monetary policies can be influenced and it's not just through the change.
