(Washington) Falling energy prices helped bring down inflation in March in the United States, but this may still not be enough to prevent the Federal Reserve (Fed) from increasing again its rates next week.

According to the PCE index, published Friday by the Commerce Department, inflation was 4.2% in March, down sharply from the previous month (5.1%) and now at its lowest in more than two years.

In just one month, price growth also slowed further, to 0.1%, in line with analysts’ expectations, according to the consensus published by briefing.com.

But core inflation, excluding food and energy prices and which is the data particularly watched by the Fed, has experienced a more modest decline, to 4.6% over one year, against 4.7 % a month earlier, and is now outpacing inflation.

Over one month, core inflation is 0.3%, equivalent to what it was in February.

“Underlying inflation is slowing modestly, but remains well above the target” of the Fed, underlines the chief economist of HFE, Rubeela Farooqi, who believes that the trend of the last month remains insufficient to push the institution to wait for a further increase.

The US central bank wants to bring inflation back to its target of 2% over one year.

Until now, prices were mainly driven by external shocks and their effects on raw materials and food. Energy in particular had a direct effect on the overall upside.

But this is no longer the case: energy prices even fell by almost 10% in March and food prices slowed sharply, to 8% over one year against almost 10% again in February.

More broadly, product prices returned to acceptable levels, rising 1.6% year-on-year.

Inflation is now concentrated on the side of services, whose prices are still experiencing inflation of 5.5%, even if, here too, the trend is slowing compared to the previous month (5.8%).

So many elements that should encourage the Fed, whose monetary committee meets next week, to continue raising its rates, now between 4.75% and 5%, whereas they were between 0% and 0.25% just over a year ago.

The market very broadly anticipates a further rise in the main rates, of 0.25 percentage points.

“We believe the rate hike next week will represent the high point of this tightening cycle. The Fed will likely need some time to assess the impact of the rapid tightening it has been implementing over the past 18 months before deciding how to proceed,” said Luke Bartholomew, senior economist for the Fed. investment company abrdn.

With inflation now below applied rates, the Fed is entering new territory, that of real monetary tightening, with an effect that could be even stronger on the economy.

This is already being felt, however. Admittedly, the job market remains very solid, with an unemployment rate that remains around 3.5%, but the American economy slowed down in the first quarter, up 1.1% at an annualized rate, lowest since post-pandemic recovery.

In addition, most analysts are expecting a more difficult end of the year for the United States, with growth expected to be weak, or even a recession, over the coming quarters, in particular due to the tightening of credit conditions. .

The fear for the Fed is to see a risk of inflation materialize “generalized in the economy”, alerted on April 21 one of its governors, Lisa Cook. She pointed out that while the various measures of inflation “had come back from their highs, they remained high, suggesting that inflation had become widespread in the economy.”

“The big question is whether, and how quickly, inflation will continue on its downward path towards our 2% target,” she added.