The Labor Department’s inflation data on Tuesday will inform the Federal Reserve of price pressures in the economy as the central bank faces bank failures.
Inflation has cooled after a recent peak last June, but remains stubbornly high. The consumer price index, a closely monitored measure of inflation, rose 6.4% in January from a year earlier, slightly less than the 6.5% increase in December.
The Labor Department will release its February CPI report at 8:30 a.m. ET Tuesday.
As inflation rises in the US, rising food and energy costs have pushed the country’s most popular price index to its highest level in four decades. Gwynn Guilford from WSJ explains how the consumer price index works and what it can tell you about inflation. Illustration: Jacob Reynolds
The stabilization of inflation coupled with signs of a strong labor market and improving consumer spending early this year raised the possibility that the Fed could raise its benchmark interest rate by half a percentage point at its March 21-22 meeting, after opting for a smaller increase in early February.
However, that calculation was complicated by the collapse of Silicon Valley Bank and other financial institutions in recent days. The central bank may be more cautious next week to assess the state of the financial system.
Economists polled by The Wall Street Journal estimate that the consumer price index cooled to a 6.0% year-on-year increase in February. Excluding volatile food and energy prices, economists estimate the index fell slightly to a 5.5% increase from a 5.6% increase last month.
“The Fed still has more work to do” to bring inflation back close to the 2% target, said Michael Gapen, chief U.S. economist for Bank of America.
“If the Fed succeeds in containing recent market volatility and shielding the traditional banking sector, it should be able to continue its gradual pace of rate hikes until monetary policy is sufficiently restrictive.”
The Fed has been aggressively raising rates over the past year to cool demand and fight inflation. Sharply higher interest rates contributed to the bankruptcy of the $110 billion Signature Bank and the $209 billion Silicon Valley Bank in recent days, and could complicate the central bank’s approach to raising rates this year if the crisis deepens. would spread further in the financial system.
Before the bank failures, the broader economy showed surprising strength to start the year. Spending at retailers and restaurants rose at the fastest monthly pace in nearly two years in January, and the February jobs report, released Friday, showed employers added 311,000 jobs after half a million jobs in January.
Still, there are signs of cooling down. Economists estimate that retail spending fell in February. The Department of Commerce will release new consumer data on Wednesday.
Wage growth slowed last month, suggesting that tight labor markets are not leading to rapid increases in workers’ wages. And the number of job openings, while still well above the number of unemployed looking for work, fell in January, the Labor Department said. Estimates of private sector job vacancies show that demand for labor continues to cool.
Spending and employment are growing in service providers, such as restaurants, hotels and doctor’s offices, which were hit hardest at the start of the pandemic. Those sectors have partly supported recent inflationary pressures through strong wage increases.
At First Watch, a chain of more than 400 breakfast and lunch cafes, there is little sign of a consumer slowdown. While labor and related costs rose 11.4% in 2022, the company increased menu prices by an average of 7.8% over the year, after being able to hold prices flat in 2021. Annual supplier contracts have helped keep the chain’s food costs predictable, while same-restaurant sales increased 14.5% compared to 2021.
To capitalize on enthusiastic customers, the company works to keep wait times low during peak periods, such as weekend mornings. Experimenting with different kitchen configurations and specialized roles, such as dedicated drink runners to free up servers.
“We have an unmet demand coming up,” said First Watch Chief Executive Chris Tomasso. “We’re investing in improvement and processes and equipment and things like that to meet that demand.”
In cases where labor shortages have led to higher prices, some consumers have withdrawn and looked for cheaper alternatives.
A malfunctioning wood stove in the home of Ruby Koch-Fienberg and Ben Surface in Dover, New York.
Photo:
Ruby Koch-FIenberg
Ruby Koch-Fienberg and Ben Surface of Dover, NY, set out to find a contractor who would replace a faulty wood burner and demolish the damaged chimney. They were told that the likelihood of the work being completed this winter was slim given the backlogs, and that the work could cost thousands of dollars.
They are now considering demolishing the chimney themselves.
“We can save up to $8,000 and have a really fun weekend,” Ms. Koch-Fienberg said.
Write to Gabriel T. Rubin at gabriel.rubin@wsj.com
Corrections and reinforcements
Ruby Koch-Fienberg lives in Dover, NY An earlier version of this article and a caption misspelled her last name as Koch-Feinberg. (Corrected March 13)
Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8
Leave a Reply