Economic Update for March 25, 2024-Inflation, Jobs, the Economy, Gas Prices and More

Inflation Ticked Up Last Month, Backing the Fed’s Caution on Rate Cuts (from the New York Times): Consumer prices climbed 3.2 percent last month from a year earlier, down notably from a 9.1 percent high in 2022, but still quicker than the roughly 2 percent that was normal before the pandemic. 

Inflation sped up slightly in February on an overall basis and a closely watched measure of underlying price increases was firmer than economists had expected.

The fresh data underscores that fully returning inflation to a normal pace is likely to be a bumpy process — and backs up the Federal Reserve’s decision to proceed carefully as officials consider when and how much to lower interest rates.

The Consumer Price Index climbed 3.2 percent last month from a year earlier, up from 3.1 percent in January. That’s down notably from a 9.1 percent high in 2022, but it is still quicker than the roughly 2 percent that was normal before the pandemic.

After stripping out volatile food and fuel costs for a better sense of the underlying trend, inflation came in at 3.8 percent, slightly faster than economists had forecast. And on a monthly basis, core inflation climbed slightly more quickly than anticipated as airline fares and car insurance prices increased, even as one closely watched housing measure climbed less rapidly.

Taken as a whole, the report is the latest sign that bringing inflation fully down is likely to take time and patience.

To date, inflation has come down steadily and relatively painlessly: Unemployment continues to hover below 4 percent and growth in 2023 was unexpectedly strong, even though the Fed has raised interest rates to a more-than-two-decade high.

Fed officials have been debating how long they need to leave rates at their current level, about 5.3 percent. Elevated borrowing costs make it expensive for people to borrow to buy a house or expand a business, and that can weigh on the economy over time. The Fed has been trying to tamp down demand enough to bring inflation under control, but officials want to avoid crushing growth to the point that it leads to widespread job losses or a recession.

Some economists have been worried that it could be harder to slow inflation the rest of the way than it has been to achieve the progress so far. And Fed officials want to avoid lowering interest rates too early, only to find out that inflation is not fully quashed.

Interest rates (from the New York Times): Fed Holds Rates Steady and Projects Three Cuts This Year-Federal Reserve officials kept interest rates at 5.3 percent and projected they would lower borrowing costs in 2024 as the Fed chair struck a watchful tone.

Federal Reserve officials left interest rates unchanged on Wednesday and continued to forecast that borrowing costs will come down somewhat by the end of the year as inflation eases.

Fed policymakers have been battling rapid inflation for two full years as of this month, and while they have been encouraged by recent progress, they are not yet ready to declare victory over price increases. Given that, they are keeping interest rates at a high level that is expected to weigh on growth and inflation, even as they signal that rate cuts are likely in the months ahead.

Officials held interest rates steady at about 5.3 percent, where they have been set since July, in their March policy decision.

Policymakers also released a fresh set of quarterly economic estimates for the first time since December, and those projected that borrowing costs will end 2024 at 4.6 percent. That unchanged forecast suggests that they still expect to make three quarter-point rate cuts this year.

Central bankers are trying to guide the economy toward a soft landing — a situation where inflation cools back to normal without a painful economic slowdown that pushes unemployment sharply higher. They want to make sure that they keep interest rates high long enough to bring price increases fully under control, but they also want to avoid overdoing it and causing a recession.

Given those risks, officials are creeping toward rate cuts only cautiously. Mr. Powell avoided giving any hint when asked about when rate cuts might start, in a clear effort to keep the Fed’s options open.

From the Financial Times: Bank of England holds rates at 5.25%. The Bank of England has kept interest rates on hold at 5.25 per cent for the fifth successive meeting, as evidence grows that inflation is falling.

 What’s Behind California’s High Gas Prices? from the Center for Jobs and the Economy. 

Using average annual results from Energy Commission data, the total amount of taxes and fees Californians must pay at the pump—state, local, and federal—generally exceeds the actual costs of refining and distributing that fuel.  Since the tax and fee bite began soaring in 2018, the amount charged by state and local governments alone has exceeded those costs in 5 of the last 7 years (2024 is the year-to-date results as of March).

To put these results in perspective:

  • Fuel taxes and fees are not just a “portion” of what Californians pay.  These charges basically double the cost of refining and delivering gasoline in this state.  No other product, especially one so critical to the cost of living faced by Californians every day, is penalized with this level of taxation.
  • Using the Energy Commission data to date for 2024, the effective tax rate paid by Californians—regardless of income level—when buying gasoline is 45.0%.  State and local charges alone are 39.0%.  And these only cover the taxes and fees tacked onto the final selling price, and do not include the range of other taxes and fees levied against the refining, distribution, and retail operations and which consequently are incorporated into the final prices Californians must pay.
  • Using the most current Energy Commission data for March 18, US Energy Information Administration data shows the spread between the average California and average US per gallon price for gasoline was $1.06.  Total state and local taxes and fees were $1.25 per gallon.  Except for the high cost of these state and local taxes and fees, Californians in fact would be paying less per gallon than the cost in the other states.
  • The California rates are not just high, they are the highest.  As of July 2023, Tax Foundation reports that the state taxes and fees alone are the highest at 77.9 cents per gallon, compared to an average of only 31.6 cents in the other states and DC and 17.47 cents in Missouri, the lowest among the contiguous states.


The Energy Commission has long maintained a web site that details the specific factors that have led to California’s higher fuel prices.  As summarized:

  •  Higher taxes. As discussed above, California has the highest state gasoline taxes and fees among the states and DC.
  •  Higher gasoline production costs, currently at 15 cents a gallon, due to California’s unique formulation regulation.  These costs, however, are going higher.  The Air Resources Board continues to promulgate additional regulations affecting the formulation and consequently the cost of fuels allowed to be sold in the state.  The Board’s recent Standardized Regulatory Impact Assessment estimates that the current changes being considered to the LCFS requirements will raise the price of gasoline by 12 cents a gallon beginning in 2024, increasing to $1.83 a gallon by 2041.  These numbers are based on constant dollar (2021) estimates.  The actual price that will be paid by Californians will be higher once inflationary factors are incorporated as well.
  • Higher environmental program costs.  California’s stricter requirements for issues such as air quality, climate change, and other environmental programs significantly increase the compliance component of operating costs.
  • Shorter winter season.  California’s regulations require an annual changeover between the winter blend and summer blend regulations.  As recognized by the governor in issuing orders twice to the Air Resources Board for an early shift to winter blend to deal with fuel price spikes, production costs are substantially higher for the summer blend.
  •  Isolated fuels market.  California’s unique formulation regulations mean compliant fuels and blending components are primarily produced in the state for use in the state.  There are no pipelines connecting to the broader national market, and what few alternative supplies that do exist must be transported by tanker in a three-to-four-week voyage.  As a result, “. . . unplanned refinery outages requiring maintenance can significantly impact the state’s gasoline supply, usually resulting in temporary price spikes.”


** Editorial Note: There is also never analysis of the actual cost to drive. In states with lower gas taxes, many have toll roads and bridges that fund highway maintenance. And many states simply do not tax as heavily as California.