US inflation rose by 0.38% month-over-month (MoM), year-to-date (YTD) for the three months to 0.38%, up from 0.26% in the six months prior. This is well above the medium-term trend, with average monthly growth averaging just 0.15% from 2015 to 2019 inclusive, meaning it is now more than 2.5 times the norm.
Federal Reserve's Response
At the beginning of the year, the Fed signaled significant progress in the fight against inflation, showing a willingness to start cutting rates provided the inflation data is as excellent as it was in the second half of 2023. So what did they get? As soon as the Fed doves reared their heads, reality dealt a crushing blow to the MPC's unreasonable desires for early easing.
Core Inflation Analysis
A more typical and telling example is core inflation, which rose 0.36% MoM in March, with a monthly average of 0.37% in 1Q 2024 compared to 0.27% in the very successful 2023. The historical norm is price growth of 0.17% per month (half what it is now).
Once again, as usual, the main driver of price growth was the cost of housing (rent and utilities in aggregate), where prices rose by 0.4% MoM, for three months - 0.47%, compared to the norm of 0.22%. Housing accounted for about 0.15 percentage points in the overall price increase. The medical segment (goods and services) is accelerating, with price growth in March at 0.49% MoM, for three months at 0.3%, compared to the norm of 0.24% from 2015 to 2019. The transportation segment (goods and services including auto and fuel) is growing at a faster pace, with price growth of 0.78% in three months and 0.51% MoM, compared to the norm of 0.08%. The acceleration of price growth is mainly due to fuel. Education, communication, and IT services and goods are growing at 0.29% per month in three months, with the norm of growth at zero (0.02%).
Almost three-quarters of goods and services are growing at rates 1.7 to 2 times the normal rate, and unlike in 2023, when housing was the main concern, inflation is now spreading to a wider range of goods and services.
Conclusion
U.S. inflation rose sharply, exceeding medium-term trends and defying the Fed's earlier optimism. Core inflation, noticeably higher, reflects broader economic shifts. Housing costs remain the dominant driver, with acceleration also seen in the medical and transportation sectors. Broad-based inflation underscores the complexity of the economy, requiring close monitoring and potentially difficult policy decisions.