Stubbornly high inflation has been a problem for investors, consumers — and the Federal Reserve. Two economic reports this week will reveal whether inflation is holding strong, receding somewhat, or even increasing in 2024.
A report on the Producer Price Index (PPI) for April will be released on Tuesday, followed by one on the Consumer Price Index (CPI) on Wednesday.
Analysts are forecasting that there is a chance that the PPI, which measures inflation at the wholesale level, will increase slightly by 0.3% for the month, following a 0.2% rise in March. The estimated annual PPI would be 2.2% and 2.3%. It’s also expected that the core PPI, which excludes food and energy costs, will increase by 0.2%.
On Wednesday, the Labor Department will release its April report on the Consumer Price Index (CPI), which is forecast to drop. Analysts predict there will be no change in the April overall index from March (a 0.4% rise), while the annual rate will decrease slightly from 3.5% to 3.4%.
The forecasts by economists did not explain much about the significant changes in the inflation status quo. The predictions of PPI and CPI are still higher than the Fed’s target of 2%, which seems far beyond reach at the moment. It is widely believed that the Fed should not regulate interest rates in accordance with the 2% target because the target is outdated and needs to be raised.
The country’s central bank raised interest rates by 25 basis points on March 17, 2022, to 0.25% to 0.50%, and it has done so eleven times since then. Last time, it raised interest rates on July 26, 2023, by 25 basis points from 5.25% to 5.50%, which is the current range.
In December 2023, the Fed promised three interest rate cuts in 2024, but there’s no hint of that happening any time soon. The economy is going through a phase during which inflation is stubborn, unemployment is rising, and GDP is declining. Despite the Federal Reserve’s promise to refrain from any interest rate hikes this year, the current trend of inflationary cooling is not rapid enough to facilitate a decision on rate cuts.