• 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

Business Conditions Monthly August 2025

October 21, 2025

Shooting the American Dream in the Foot?

October 21, 2025

Government Promised Healthcare for All. It Gave Us...

October 21, 2025

Ordoliberalism as a Response to Populism 

October 21, 2025

Chip Roy says Democratic Party taking its ‘dying...

October 21, 2025

Hamas transfers coffin of dead hostage to Israel,...

October 21, 2025

US to expedite nuclear-powered subs to Australia that...

October 21, 2025

GOP bill targets United Nations’ global carbon ‘tax...

October 21, 2025

James Comey seeks to dismiss his criminal case,...

October 21, 2025

DOJ seeks removal of Comey’s defense lawyer, citing...

October 21, 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

  • Links Field, Hapolo, and SIMCom launch the first Brazilian tracker with SGP.32 eSIM technology and 4G connectivity

    October 21, 2025
  • Business Conditions Monthly August 2025

    October 21, 2025
  • Digital Matter Doubles Battery Life in IoT Asset Tracking Deployments with New Energy Saving Stack

    October 21, 2025
  • Globalstar Announces Commercial Rollout of RM200M Two-Way Satellite IoT Module

    October 21, 2025
  • Ceva Launches Wi-Fi 7 IP for Smarter, AI-Driven IoT and Physical AI Systems

    October 21, 2025
  • Shooting the American Dream in the Foot?

    October 21, 2025

Editors’ Picks

  • 1

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

    February 21, 2025
  • 2

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

    February 23, 2025
  • 3

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

    February 20, 2025
  • 4

    Pop Mart reports 188% profit surge, plans aggressive global expansion

    March 26, 2025
  • 5

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

    March 1, 2025
  • 6

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

    February 25, 2025
  • 7

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

    March 1, 2025

Categories

  • Economy (2,953)
  • Editor's Pick (292)
  • Investing (185)
  • Stock (2,019)
  • 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

Trump-backed bill to avert government shutdown passes...

March 12, 2025

Iran ramps up state executions amid nuclear...

April 23, 2025

Trump answers whether Comey indictment is about...

September 27, 2025