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Inflation Will Continue to Play Pivotal Role in 2024

All eyes are on the consumer as the Federal Reserve considers moves around interest rates.
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WASHINGTON, D.C. — In its analysis of trends to watch out for in 2024, the National Retail Federation (NRF) has predicted inflation, along with the Federal Reserve's efforts to bring it under control, will continue to play a major role in the economy this year. 

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"With the U.S. economy's strength resting heavily on household spending, all eyes are on the consumer — and how consumers will respond [in] the next few months to the Federal Reserve's ongoing efforts to tame inflation," said Jack Kleinhenz, NRF chief economist. "While inflation is down from its peak, it has slowed less than expected and is still an important problem that remains to be solved."

Kleinhenz's comments came in the March issue of NRF's Monthly Economic Review, which said January's 3.1% year-over-year inflation as measured by the Consumer Price Index (CPI) was an improvement from December's 3.4% but "still a considerable distance" from the Fed's target of 2%. However, the Personal Consumption Expenditures Price Index showed inflation at 2.4% in January, a fall from 2.6% in December.

Kleinhenz said a key issue is the difference between prices for services, which were up 4.9% year over year in January, and commodity-based prices (including retail goods), which were up only 0.1% for the same period, according to the CPI. As of the fourth quarter of 2023, 65% of consumer spending was on services, which was short of 68% in the fourth quarter of 2019 but up from the pandemic low of 63% in April 2021.

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Overall consumer spending dipped in January due to a decline in spending on goods and lower prices, even though there was a rise in services spending and prices for services were elevated.

In January, the Fed also left interest rates unchanged for the fourth straight time over about seven months. The central bank's Federal Open Markets Committee (FOMC) said its employment and inflation goals "are moving into better balance" but also that it would not be appropriate to reduce rates until it has gained greater confidence that inflation is moving sustainably toward 2%.

Kleinhenz said he expects the Fed to hold rates steady in March but then cut rates by a quarter of a percentage point either at the FOMC's meeting at the end of April or at its June meeting. 

[Read more: Five Takeaways From NRF 2024: Retail's Big Show]

Washington, D.C.-based NRF empowers the industry that powers the economy. Retail is the nation's largest private-sector employer, contributing $3.9 trillion to annual gross domestic product and supporting one in four U.S. jobs — 52 million working Americans.

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