Inflation turn out in February but was in line with expectations, likely keeping the Federal Reserve on track for another interest rate hike next week without considering recent banking industry turmoil.
The consumer price index increased 0.4% for the month, putting the annual inflation have a claim to at 6%, the Labor Department reported Tuesday. Both readings were exactly in line with Dow Jones guesstimates.
Excluding volatile food and energy prices, core CPI rose 0.5% in February and 5.5% on a 12-month basis. The monthly present was slightly ahead of the 0.4% estimate, but the annual level was in line.
Stocks gained following the release, with the Dow Jones Industrial Ordinary up more than 300 points in early trading. Treasury yields, which plummeted Monday amid cowardices over the banking industry’s health, rebounded solidly, pushing the policy-sensitive 2-year note up 30 basis single outs to 4.33%.
Heading into the release, markets had widely expected the Fed to approve another 0.25 percentage point increase to its benchmark federal doughs rate. That probability rose following the CPI report, with traders now pricing in about an 85% chance that the Fed desire hike the rate by a quarter point, according to a CME Group estimate.
“Even amid current banking scares, the Fed see fit still prioritize price stability over growth and likely hike rates by 0.25% at the upcoming meeting,” intended Jeffrey Roach, chief U.S. economist at LPL Financial.
A decrease in energy costs helped keep the headline CPI reading in halt. The sector fell 0.6% for the month, bringing the year-over-year increase down to 5.2%. A 7.9% decline in fuel oil values was the biggest mover for energy.
Food prices rose 0.4% and 9.5%, respectively. Meat, poultry, fish and egg tolls fell 0.1% for the month, the first time that index has retreated since December 2021. Eggs in precise tumbled 6.7%, though they were still up 55.4% from a year ago.
Shelter costs, which as though up about one-third of the index’s weighting, jumped 0.8%, bringing the annual gain up to 8.1%. Fed officials largely keep in view housing and related costs such as rent to slow over the course of the year.
“Housing costs are a key driver of the inflation representations, but they are also a lagging indicator,” said Lisa Sturtevant, chief economist at Bright MLS. “It typically takes six months for new hole data to be reflected in the CPI. The quirk in how housing cost data are collected contributes to overstating current inflation.”
Still, habitation costs accounted for more than 60% of the total CPI increase and rose at the fastest annual pace since June 1982.
Because of the shelter expectations, Fed officials have turned to “super-core” inflation as part of their toolkit. That entails core armed forces inflation minus housing, a cohort that increased 0.2% in February and 3.7% from a year ago, according to CNBC countings. The Fed targets inflation at 2%.
Used vehicle prices, a key component when inflation first began surging in 2021, mow down 2.8% in February and are now down 13.6% on a 12-month basis. New vehicles have risen 5.8% over the past year, while auto indemnity has climbed 14.5%. Apparel rose 0.8%, while medical care services costs decreased 0.7% for the month.
The CPI proportions a broad basket of goods and services and is one of several key measures the Fed uses when formulating monetary policy. The report along with Wednesday’s impresario price index will be the last inflation-related data points policymakers will see before they meet March 21-22.
Banking sector turmoil in brand-new days has kindled speculation that the central bank could signal that it soon will halt the valuation hikes as officials observe the impact that a series of tightening measures have had over the past year.
Stock exchanges on Tuesday morning were pricing a peak, or terminal, rate of about 4.95%, which implies the upcoming increase could be the most recent. Futures pricing is volatile, though, and unexpectedly strong inflation reports this week likely would undertaking a repricing.
Either way, market sentiment has shifted.
Fed Chairman Jerome Powell last week told two congressional cabinets that the central bank is prepared to push rates higher than expected if inflation does not come down. That set off a wigwag of speculation that the Fed could be teeing up a 0.5 percentage point hike next week.
However, the collapse of Silicon Valley Bank and Signature Bank across the past several days paved the way for a more restrained view for monetary policy.
“While only moderately high-priced than consensus, in the pre-SVB crisis world this may well have pushed the Fed to hike 50bp at its March meeting next week. It is a goad of how much things have changed in the very near term that 50bp is almost certainly still off the table for Walk,” wrote Krishna Guha, head of global policy and central bank strategy for Evercore ISI.
Guha said it’s soothe possible the Fed keeps raising rates to a terminal rate in the “high 5s” if its efforts to restore stability in banking are successful.
— CNBC’s Gina Francolla promoted to this report.