Inflation’s down, will interest rates follow?
By Joe Higgins, Quest 4 Quality
The Consumer Price Index (CPI) for March, released earlier this month, showed the annual inflation rate dropping to 5%.
This was a significant reduction from the high of 9.1% last June, and was the smallest annual increase in inflation since June of 2021. It also gets us much closer to the Fed’s target rate of 2%, meaning the Fed may possibly pause its rate hike cycle at its May meeting.
Inflation for durables and other goods has continued to contract — down 7.9% for appliances and 14.1% lower for TVs. At the same time, the cost of services continues to climb, with airfares up 17.7%, hotel rooms 12.8% higher, and dining out rising 11.6%.
Likewise, the shortage of homes across America and a recent decline in interest rates helped drive housing prices up by 8.2%, accounting for 40% of the CPI and 58% of the overall increase in March.
The cost of gasoline, the most observed pricing in the U.S., was down 18% last month, which helped with the overall reduction of inflation. However, the war in Ukraine has caused us to export more oil to Europe, and OPEC announced that it would be cutting oil production by 3.7 million barrels a day, or about 4% of global capacity, which led to higher prices at the pump in April.
The Fed has raised interest rates over the past year nine times for a total of 475 basis points. This is the most aggressive attempt to fight inflation in U.S. history after lowering rates to near zero to help the economy. Today your credit cards’ interest rates are somewhere between 18% and 22%; it is an excellent time to put them away.
CDs are paying between 4% to 5%. If you are a saver looking for safety, choose an FDIC bank and pick up the best return we’ve had in 17 years.
For borrowers, it’s time to wait out the Fed as they will probably pause rate hikes this year to see if inflation gets down to their target rate of 2%. If they reach their goal, rates could decline in the second quarter of 2024.
Joe Higgins is a 44-year veteran of GE and Whirlpool Corp. who brings his executive experience to bear as a business consultant, AVB keynoter and YSN contributor. Visit his website, Quest 4 Quality with Joe, at Q4QwithJoe.com