The US economy grew by less than forecast in the first three months of this year but inflation gathered pace, which could delay an interest rate cut.
Official figures revealed the economy expanded at an annualised rate of 1.6%, far below expectations and the growth seen in the final months of 2023.
Meanwhile, inflation, which measures the pace of price rises, has increased.
At the start of the year, experts had been forecasting a series of interest rate cuts in the US.
However, inflation is yet to fall back to the Federal Reserve’s 2% target, and on Thursday, figures from the US Department of Commerce showed that inflation increased by 3.4% in the first three months of 2024. This is compared to an increase of 1.8% in the final three months of 2023.
Raising interest rates makes borrowing – for things such as loans and mortgages – more expensive and theoretically is meant to encourage people to spend less. The idea is that this helps to bring inflation down by dampening demand.
However, US inflation has not fallen back as quickly as expected.
At the same time, economic growth – measured as gross domestic product (GDP) – has slowed from 3.4% growth in the final three months of last year to 1.6%. Economists had been expected it to decelerate but only to 2.4%.
Olu Sonola, head of US economic research at Fitch, the credit rating agency, said: “The hot inflation print is the real story in this report.
“If growth continues to slowly decelerate, but inflation strongly takes off again in the wrong direction, the expectation of a Fed interest rate cut in 2024 is starting to look increasingly more out of reach.”
The key US interest rate is between 5.25% to 5.5% – the highest level in more than 20 years.
Stuart Cole, chief macro economist at Equiti Capital in London, said the US Federal Reserve, which sets interest rates, was “now finding itself caught between a rock and a hard place”.
“The growth numbers suggest monetary policy has worked its magic and the Fed’s foot on the monetary brake can be eased somewhat,” he said.
“But the inflation figures suggest otherwise, and potentially even point to the need for a further tightening.”
The 1.6% growth figure is the first estimate of GDP. A second reading, “based on more complete source data”, will be released on 30 May.
Nevertheless, the economy is a key issue as the US heads towards an election later this year.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
