Inflation rose in February but was consistent with expectations, providing a key input into whether the Federal Reserve continues to lift rates of interest.
The buyer price index increased 0.4% for the month, putting the annual inflation rate at 6%, the Labor Department reported Tuesday. Each readings were exactly consistent with Dow Jones estimates.
Excluding volatile food and energy prices, core CPI increased 0.5% in February and 5.5% on a 12-month basis. The monthly reading was barely ahead of the 0.4% estimate, however the annual level was in line.
Markets were volatile following the discharge, with futures tied to the Dow Jones Industrial Average pointing to a positive open.
A decrease in energy costs helped keep the headline CPI reading in check. The sector fell 0.6% for the month, bringing the year-over-year increase right down to 5.2%. Food prices rose 0.4% and 9.5% respectively.
Shelter costs, which make up about one-third of the index’s weighting, jumped 0.8%, bringing the annual gain as much as 8.1%. Fed officials largely expect housing and related costs corresponding to rent to slow over the course of the yr.
CPI measures a broad basket of products and services and is one among several key measures the Fed uses when formulating monetary policy. The report together with Wednesday’s producer price index will probably be the last inflation-related data points policymakers will see before they meet March 21-22.
Heading into the discharge, markets had widely expected the Fed to approve one other 0.25 percentage point increase to its benchmark federal funds rate.
Nevertheless, banking sector turmoil in recent days has kindled speculation that the central bank could signal that it soon will halt the speed hikes as officials observe the impact that a series of tightening measures have had over the past yr.
Markets Tuesday morning were pricing a peak, or terminal, rate of about 4.92%, which might mean the upcoming increase could be the last. Futures pricing is volatile, though, and unexpectedly strong inflation reports this week likely would cause a repricing.
Either way, market sentiment has shifted dramatically.
Fed Chairman Jerome Powell last week told two congressional committees that the central bank is ready to push rates higher than expected if inflation doesn’t come down. That set off a wave of speculation that the Fed could possibly be teeing up a 0.5 percentage point hike next week.
Nevertheless, the collapse of Silicon Valley Bank and Signature Bank over the past several days paved the best way for a more restrained view for monetary policy.
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