CPI Slowed in March, More Tightening Necessary to Get Inflation Under Control

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The U.S. Bureau of Labor Statistics released its Consumer Price Index Summary today, showing CPI increased by 0.1 percent in March 2023.

CEI Senior Economist Ryan Young said:

“Inflation decelerated in March, but the Fed needs to continue tightening in order for inflation to get down to its 2 percent target. There is more to do.

“One reason for the dip is a decline in food and energy prices. These fluctuate with supply and demand, which is different from the monetary inflation everyone is worried about. Monetary inflation is caused by too creating too much money. This happened during COVID, and we are still feeling the effects now.

“Monetary inflation is actually worse than the headline number says. The Core CPI, which excludes food and energy prices, went up 0.4 percent in March, or quadruple the 0.1 percent headline number. That is concerning, to say the least.

“The Fed’s next interest rate decision is in the first week of May. Right now, the federal funds rate is just about zero in real terms. Complaints about its higher-than-usual 5 percent ceiling forget about the difference between real and nominal rates, which is about as basic an error as it is possible to make. For context, the rate peaked at 19 percent during the 1970s great inflation, but was barely 2 percent in real terms.

“The sweet spot for the federal funds rate is a percentage point or two above the inflation rate. That likely means at least one more interest rate increase is necessary, depending on what the Fed expects to happen to the inflation rate over the next several months.”

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