(Brussels) Inflation continues to decline on both sides of the Atlantic, but remains at levels still well above the 2% target targeted by the central banks, which are trying to slow it down by regularly increasing their rate.
According to the PCE index, which is favored by the US Federal Reserve (Fed), inflation fell to 5% in February year on year, with underlying inflation, i.e. excluding energy and food. , at 4.6%, the lowest difference between the two measures for many months.
The rise in the CPI index, another measure of inflation which refers to the United States and on which pensions are notably indexed, fell in February to 6.0% over one year, its lowest level since a year and a half, a sign that the trend is well confirmed.
In a statement, US President Joe Biden welcomed the “progress made in the fight against inflation in a context of low unemployment and sustained growth”, but he recognizes that this fight “is not over”.
In Europe, inflation is also continuing to decelerate thanks to a lull in energy prices, but, at 6.9% over one year in March, the rise in prices remains high and is accelerating further in food.
If the trend is positive, the persistence of inflation shows that the battle to bring it back towards the 2% per year target will still be a long one, for the Fed and the European Central Bank (ECB), which should continue to raise their interest rates.
However, with risks: that of plunging the economy into recession, while both the United States and the European Union should experience weak growth this year, but also of destabilizing a little more a banking sector under surveillance after the bankruptcy of the American bank SVB and the rescue of Credit Suisse.
Annual inflation in the euro zone fell in March for the fifth consecutive month, more strongly than expected by experts polled by Factset and Bloomberg, who expected an average of 7.1%, after 8.5% in February.
The rise in consumer prices, published by Eurostat, had reached a record in October, at 10.6% year-on-year, after a year and a half of uninterrupted rise, accelerated by the war in Ukraine.
March’s improvement was primarily driven by a slight decline in energy prices from the very high levels they reached a year ago after Russia invaded Ukraine.
Energy prices (fuel, electricity, gas, etc.) fell by an average of 0.9% over one year, their first drop in one year. They rose again by 13.7% in February and the sectoral increase peaked in October with a jump of 41.5%.
The bad news, however, comes from food prices, whose rise accelerated to 15.4% in March, after 15% in February.
Adjusted for volatile energy and food prices, so-called “core” inflation, which is more representative of long-term trends, rose again to 5.7% in February, a record level well above the 2% inflation ceiling set by the ECB.
During a meeting with students in Florence (Italy), the President of the ECB, Christine Lagarde also estimated that this figure remained “significantly too high”.
Inflation for industrial goods slowed to 6.6% (-0.2 points compared to the previous month). But prices for services increased by 5%, or 0.2 points more than in February.
Towards salary increases?
“Underlying inflation remains a matter of concern for the ECB (which) will continue to raise its rates in the short term”, commented Bert Colijn, economist for ING Bank, which expects a rise of 25 basis points in May and then again in June.
Capital Economics expert Jack Allen-Reynolds agrees. “ECB policymakers won’t dwell too much on the decline in headline inflation in March and will be more concerned that the underlying rate has hit a new record high,” he said.
This expert expects a continuation of the fall in energy prices in the coming months, as well as a slowdown in the rise in food prices and overall inflation in the euro zone. But he is worried about possible salary increases which could fuel higher prices for services, in a context of a tight job market.
Eurostat announced on Friday a stable unemployment rate in February at 6.6% of the working population, its lowest historical level in the 20 countries sharing the single currency.
The ECB has already raised its key rates by 3.5 percentage points since July and does not intend to stop there, despite the recent turbulence affecting the banking sector and very weak growth forecasts for this year.
The Fed is also determined to bring inflation back into line with rate hikes, but the crisis in the banking sector prompts it to be cautious. This crisis leads to a tightening of credit conditions which is equivalent to a rise in rates, underlined the chairman of the Fed, Jerome Powell.