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What a rise in US inflation means for the election and interest rates
Insights from Politico, BBC, and The Japan Times
The News
The U.S. inflation rate was slightly higher than expected last month, new data showed Tuesday, with goods and services costs increasing 3.2% from a year ago.
The new numbers — still above the U.S. Federal Reserve’s target of 2% inflation — are likely to reinforce expectations that policymakers won’t cut interest rates at the Fed’s meeting next week.
SIGNALS
Transportation costs up, grocery costs steady
Car insurance and other transportation costs, combined with stubbornly high housing costs, drove much of the inflation uptick, while grocery prices — often seen as a lay determinant of inflation — were largely unchanged. “With home prices expected to rise this year and rents falling only slowly, the long-awaited fall in shelter prices isn’t coming to the rescue any time soon,” Navy Federal Credit Union corporate economist Robert Frick said. Overall inflation remains below the 9.1% rate of June 2022, but it’s “now easing more slowly than it did last spring and summer,” Politico wrote.
Inflation and economy a large factor in election
Voters’ perceptions of inflation and the economy will be a major factor in U.S. President Joe Biden’s reelection bid against predecessor-turned-challenger Donald Trump. Republicans have repeatedly attacked Biden over consumer prices, while Biden has pointed to the U.S.’s strong job market and post-pandemic recovery, which has surpassed many of its peers. “We have the best economy in the world,” Biden said during his State of the Union address last week. His new budget proposal for a prospective second term shows how he hopes to cater to voters through his economic priorities: The document budget tax breaks for families, and would raise taxes on companies and the rich, while cutting the federal deficit.
Japan inflation could spell end of negative interest rate
Japan, meanwhile, saw a slightly higher-than-expected rise in wholesale-price inflation last month, new data showed Tuesday. Price rises could play a role in the Bank of Japan’s decision on whether to end the world’s last negative interest rate. The bank is also watching annual labor and union talks this week in which large companies could offer big pay hikes. An end to Japan’s stimulus could come in March or April, economists said.
