• Investing
  • Stock
  • Economy
  • Editor’s Pick
Portfolio Performance Today
Economy

Price Growth Slows in February

by March 13, 2025
by March 13, 2025

After disappointing readings in November, December, and January, inflation appears to be slowing once again. Could this mark the return to sustainably low price pressures?

The Bureau of Labor Statistics reported that the Consumer Price Index (CPI) increased 0.2 percent in February, after rising 0.5 percent in January. The shelter index alone “rose 0.3 percent in February, accounting for nearly half of the monthly all items increase.” Prices are up 2.8 percent over the past year.

Core inflation, which excludes volatile food and energy prices, also rose 0.2 percent last month. They have risen 3.1 percent over the last year. After widening significantly in 2024:Q3, the gap between headline and core inflation is shrinking. 

Both headline and core inflation have hovered around 3.0 percent annualized for more than a year. Let’s hope the new inflation data indicates reversion to the pre-covid trend, rather than fluctuations around a post-covid trend. 

There’s a world of difference between 2.0 percent trend inflation and 3.0 percent trend inflation. It takes 35 years for prices to double at 2.0 percent, but only 23.3 years for prices to double at 3.0 percent. Investors with capital gains get pushed into higher tax brackets. And the Federal Reserve, which is supposed to keep price growth low and predictable, loses major credibility. To prevent this, central bankers should continue the push to 2.0 percent inflation.

Is monetary policy currently suitable to achieve the 2.0-percent goal? The Fed’s current target range for the federal funds rate is 4.25 to 4.50 percent. Adjusting for inflation using the latest headline CPI figures, the real rate range is 1.45 to 1.70 percent.

As always, we need to compare this to the natural rate of interest, which is the inflation-adjusted price of capital that balances short-term supply against short-term demand. The New York Fed’s estimates put this between 0.80 and 1.31 percent in Q4:2024. Since the lowest estimate for real interest rates in the market exceeds the New York Fed’s highest estimate for the real fed funds rate monetary policy appears to be tight.

Estimates of the natural rate vary, however. The Richmond Fed puts the natural rate of interest between 1.18 and 2.66 percent. That’s a wide range. That the median estimate of 1.89 exceeds the real federal funds rate target suggests monetary policy is loose. Hence, using interest rates to judge the current stance of policy depends crucially on one’s preferred estimate of the natural rate.

We should augment this analysis with money supply data. The M2 money supply is up 3.49 percent from a year ago. The Divisia aggregates, which are broader measures that weight money supply components by their liquidity, have risen between 3.26 and 3.53 percent over the same period. How does this money supply growth compare to money demand?

To proxy the demand to hold money, we can add the most recent real GDP growth and population growth figures. The Bureau of Economic Analysis says real GDP grew at an annual rate of 2.3 percent in Q4:2024. From the Census, we learn that annual population growth in July 2024, the latest data available, was about 1.0 percent. Hence money demand is growing roughly 3.3 percent per year.

So, the money supply is growing about as fast as money demand. Broadly, that suggests neutral policy. But neutral policy corresponds most closely to non-accelerating inflation. We still want price pressures to ease. 

There’s no good reason to settle for 3.0 percent inflation. The evidence suggests that the Fed must tighten further to hit its 2.0-percent target. Whether it will tighten sufficiently or let inflation settle in above target remains to be seen.

0 comment
0
FacebookTwitterPinterestEmail

previous post
AIER’s Everyday Price Index Rose Modestly in February 2025
next post
Price Growth Slows in February

Related Posts

Trump v Powell: The Credibility Cost of Politicized...

June 27, 2025

PBS and NPR: A Free Press Doesn’t Need...

June 27, 2025

Drone incursions on US bases come under intense...

June 27, 2025

Fury erupts as unelected Senate ‘scorekeeper’ blocks Trump’s...

June 27, 2025

GOP senator calls for parliamentarian’s firing after serving...

June 27, 2025

‘Swiss army knife’: Inside VP Vance’s first 5...

June 27, 2025

‘Presidential incapacity’: Senate Republican seeks paper trail of...

June 27, 2025

Dem senator accuses top Trump official of being...

June 27, 2025

White House drops ‘Daddy’s Home’ meme after viral...

June 27, 2025

EXCLUSIVE: Trump admin takes action after massive fraud...

June 27, 2025

Stay updated with the latest news, exclusive offers, and special promotions. Sign up now and be the first to know! As a member, you'll receive curated content, insider tips, and invitations to exclusive events. Don't miss out on being part of something special.

By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

Recent Posts

  • PBS and NPR: A Free Press Doesn’t Need a Government Budget Line 

    June 27, 2025
  • Trump v Powell: The Credibility Cost of Politicized Monetary Policy

    June 27, 2025
  • Commerzbank sees China economic growth slowing in second half of 2025

    June 27, 2025
  • JSW Paints to buy Akzo Nobel India for $1.6 billion in major Indian paints market shake-up

    June 27, 2025
  • Europe markets open: stocks rise as US hints at tariff delay; auto sector gains 1.4%

    June 27, 2025
  • US-China sign trade deal, 10 more with trading partners ‘imminent’: report

    June 27, 2025

Editors’ Picks

  • 1

    Meta executives eligible for 200% salary bonus under new pay structure

    February 21, 2025
  • 2

    Walmart earnings preview: What to expect before Thursday’s opening bell

    February 20, 2025
  • 3

    New FBI leader Kash Patel tapped to run ATF as acting director

    February 23, 2025
  • 4

    Anthropic’s newly released Claude 3.7 Sonnet can ‘think’ as long as the user wants before giving an answer

    February 25, 2025
  • 5

    Nvidia’s investment in SoundHound wasn’t all that significant after all

    March 1, 2025
  • 6

    Elon Musk says federal employees must fill out productivity reports or resign

    February 23, 2025
  • 7

    Cramer reveals a sub-sector of technology that can withstand Trump tariffs

    March 1, 2025

Categories

  • Economy (1,639)
  • Editor's Pick (168)
  • Investing (185)
  • Stock (1,062)
  • About us
  • Contact us
  • Privacy Policy
  • Terms & Conditions

Copyright © 2025 Portfolioperformancetoday.com All Rights Reserved.

Portfolio Performance Today
  • Investing
  • Stock
  • Economy
  • Editor’s Pick
Portfolio Performance Today
  • Investing
  • Stock
  • Economy
  • Editor’s Pick
Copyright © 2025 Portfolioperformancetoday.com All Rights Reserved.

Read alsox

NEWT GINGRICH: The Trump-Johnson-Thune budget victory

March 16, 2025

DAVID MARCUS: Radical transparency is the secret...

February 24, 2025

Canada’s PM Carney vows to ‘fight’ Trump’s...

April 3, 2025