Inflation seems poised to stick around for longer than previously expected, according to new research from the Federal Reserve Bank of New York.
(Bloomberg) — Inflation seems poised to stick around for longer than previously expected, according to new research from the Federal Reserve Bank of New York.
Revisions to US inflation reports released in January showed that price gains in the last three months of 2022 as measured by the personal consumption expenditure price index were stronger and more broad based than previously thought, New York Fed researchers explained in a blog post published Thursday. Those adjustments, combined with data showing that another hot inflation reading for January, point to more persistent price pressures, the researchers said,
Their analysis is based on a New York Fed model known as the Multivariate Core Trend, or MCT. Using the revised data for the end of 2022, the December estimate for the model would have been 4.3%, greater than the 3.7% that was previously calculated. The reading rose to 4.9% in January.
“The current release of the MCT implies a significant upward revision in estimated inflation persistence,” wrote researchers Martín Almuzara and Argia Sbordone.
That is not great news for policymakers fighting to keep robust price gains from becoming entrenched in the economy and in consumers’ mindsets. As Fed Chair Jerome Powell told lawmakers on Capitol Hill this week, recent economic data pointing to persistent inflation means officials are likely to need to take interest rates higher than they previously anticipated.
Powell also said that officials are prepared to accelerate the pace of their rate increases if economic data keeps coming in hot. Officials stepped down to a 25 basis point rate increase in February following a half-point hike in December and four 75 basis-point increases last year. They acted aggressively last year as inflation soared and it remains well above their 2% target.
Following Powell’s remarks, investors upped their bets that the Fed will return to a half-point hike when they meet again on March 21-22 and now are more or less evenly split on the odds of it happening. The Fed chief said the decision would be based on the “totality” of the incoming economic data, including an update on the labor market coming Friday morning and a fresh reading on consumer prices to be released March 14.
The New York Fed researchers said the expectation for more persistent inflation can be explained in “roughly equal parts” by the trends in prices for core goods and core services excluding housing components. “By contrast, the contribution of housing inflation, while still elevated, appears to have stabilized in the more recent months,” they wrote.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.