CPI Data for February: Fed Likely to Increase Rates
The U.S. Consumer Price Index (CPI) data for February was released on Tuesday morning by the Bureau of Labor Statistics, providing investors with the latest insight into the state of inflation in the world’s largest economy. According to the data, the headline CPI rose 6.0% year-over-year in February, a slight decrease from January’s year-over-year change of 6.4%.
The 0.4% monthly increase in February was largely driven by higher shelter costs, which make up about one-third of the index’s weighting, and jumped 0.8% for an annual increase of 8.1%. Additionally, the food index increased 0.4%, the energy index decreased 0.6%, and the recreation index, as well as the indexes for household furnishings and operations, also contributed to the monthly rise.
The annual inflation rate was the lowest yearly price increase since September 2021 and was down from 6.4 percent in January. The report was largely in line with expectations, as economists had forecast headline inflation to rise by 6% and core inflation to increase by 5.5% year-over-year. Prices were also expected to rise by 0.4% from January to February.
Meanwhile, used car prices fell 2.8%, and are now down 13.6% on a 12-month basis, while new vehicle prices rose 0.2%.
The CPI report will have major implications for the U.S. Federal Reserve, which is tightening monetary policy at the fastest rate in decades as it tries to crush out-of-control inflation. Ahead of the CPI report, markets had widely expected the Fed to approve another 0.25 percentage point increase to its benchmark federal funds rate. That probability increased following the CPI report, with traders now pricing in about an 85% chance that the Fed will increase the rate by a quarter point.
In India, the annual retail inflation rate for February eased to 6.44% from 6.52% in January, according to the National Statistical Office. The CPI inflation rate was above the Reserve Bank of India’s targeted limit of 6% for the second time in four months.
Overall, the latest numbers are likely to keep the Fed’s rate-setting committee on track to raise rates by 0.25 percentage points at its upcoming meeting March 21-22.
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