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Inflation eased in March but prices are still climbing too fast for comfort


New inflation numbers are out this morning. And they show the pace of price hikes slowed a bit last month. But people's wallets are still being stretched. And the rising cost of services such as travel, restaurant meals, could keep inflation uncomfortably high for some time to come. NPR's Scott Horsley is here with us to talk about today's inflation report. Hi, Scott.

SCOTT HORSLEY, BYLINE: Good morning, Leila.

FADEL: OK, Scott, so I understand from you, unfortunately, prices are still going up, but not as fast as they were last summer. What else did we learn from today's report?

HORSLEY: It does show some improvement. Annual inflation in March was 5%. That's down from 6% in February and just over 9% last June. In fact, March's annual inflation rate was the lowest since May of 2021. So it is moving in the right direction. But, you know, prices are still climbing about 2 1/2 times as fast as the Federal Reserve would like. And yesterday, the International Monetary Fund said stubbornly high inflation and rising interest rates around the world are some of the factors weighing on global economic growth. Now, the IMF actually raised its forecast for economic growth here in the U.S. this year, although, it's still fairly lackluster. The projections of GDP growth, 1.6%.

FADEL: OK. So I know I keep asking you this. And you've explained this in many ways on the air. But what is keeping inflation so high?

HORSLEY: It's a moving target. You know, when inflation first spiked back in 2021, it was largely the product of runaway demand for goods and supply chains that couldn't keep up. Then last year, Russia invaded Ukraine, and we saw the price of energy and food skyrocket. Some of those price increases have reversed. Gasoline prices were down last month. Food prices were flat. But Austan Goolsbee, who's one of the newest members of the Fed's rate setting committee, says now people are spending more money on services. And that's creating a new inflation headache.


AUSTAN GOOLSBEE: The economy is still coming back from bizarro COVID times. Travel, hotels, restaurants, leisure, recreation, entertainment - demand has returned, and the inflation has proved particularly persistent.

HORSLEY: And Goolsbee warns service prices may not be as responsive to the Fed's main inflation fighting tool, which, of course, is higher interest rates.

FADEL: Now, Fed watchers still expect the central bank to raise interest rates?

HORSLEY: They do. Right now, betting markets think the Fed will raise interest rates by another quarter percentage point when it next meets in three weeks. But that could be the last rate hike for a while. You know, since the collapse of Silicon Valley and Signature banks last month, other lenders have gotten stingier about making loans. And that caution among bankers acts kind of like another rate hike. It amplifies the Fed's rate hikes and serves to break the economy. So Goolsbee says he and his colleagues had to be careful in deciding just how much higher interest rates ought to go.


GOOLSBEE: The Fed's job is to be more paranoid than anyone else. That's what they pay us for. In unluckier times, more interesting times like the times we're in right now, with wild shocks and financial stresses, it means we have to dig into loads of new information.

HORSLEY: Today's inflation report is one key piece of information for the Fed. But the central bank will also be watching closely for news about bank lending and wages and spending patterns over the next three weeks.

FADEL: Someday, Scott, you're going to get on here and tell me everything's cheaper, I hope. One day.

HORSLEY: (Laughter).

FADEL: NPR's Scott Horsley. Thank you so much.

HORSLEY: Take care.

(SOUNDBITE OF TAKENOBU'S "REVERSING") Transcript provided by NPR, Copyright NPR.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.