The U.S. Consumer Price Index (CPI) report released Tuesday morning showed that annual price increases continued to slow in February, according to the Bureau of Labor Statistics.[0] The CPI, a closely watched gauge of inflation, rose 6.0% year-over-year in February, less than January’s year-over-year change of 6.4%.[1] On a month-over-month basis, the overall CPI rose 0.4%.
The Core CPI (excluding volatile food and energy costs) increased by 0.5% from January and 5.5% year-over-year from the same month in 2021.[2] The Bureau of Labor Statistics reported that shelter prices were the primary cause of the monthly increase in February, comprising 70% of the total growth.[3] The prices for shelter increased by 0.8% in the last month, and by 8.1% in comparison[4]
Many economists have explained the high inflation numbers by suggesting that this is just a data collection problem.[5] The cost of shelter rose 8.1%, one of the largest increases since the early 1980s, which constituted 60% of the total increase in the cost of all items except food and energy.[5] However, the government’s shelter data may not be capturing what’s actually happening in the housing market, as rent prices are already falling and the housing market appears to be softening.[5]
The elevated inflation rate is creating a challenge for the Federal Reserve, as they must balance the need to bring down inflation with the instability in the banking sector.[6] The Fed had hinted that they were on target for a meaningful rate increase, but the recent disruption in the banking sector has called that into question.[7] Futures on interest rates are predicting a 0.25 percentage point hike as the most likely outcome, though there is still a chance the Federal Reserve might keep rates unchanged.[8] Expectations of a 0.5 percentage point increase which had been held last week have now decreased.[8]
Janet Yellen, the Treasury Secretary, pointed to increasing interest rates as the cause of SVB’s closure.[9] Goldman Sachs no longer expects the Fed to raise interest rates at its next two-day meeting on March 21 and 22 and Investment bank Nomura is calling for no increase next week.[10] Goldman Sachs posits that the Federal Reserve may still raise rates by 25 basis points in the months of May, June, and July.[9]
Inflation remains elevated but is slowly coming down, according to the latest Consumer Price Index.[11]
0. “Inflation Is Slowing Down. It’s a Positive for the Fed.” Barron’s, 14 Mar. 2023, https://www.barrons.com/articles/february-cpi-inflation-data-report-today-ea428646
1. “Inflation rose 6% in February as Fed mulls more rate hikes amid bank chaos” New York Post , 14 Mar. 2023, https://nypost.com/2023/03/14/inflation-rose-6-in-february-as-fed-mulls-more-rate-hikes
2. “US CPI rose 6.0% in February, per the Bureau of Labor Statistics” Business Insider, 14 Mar. 2023, https://www.businessinsider.com/inflation-price-growth-us-cpi-february-2023-3
3. “Aside From Lagged Rent Estimates, CPI Inflation Averaged 1.1 Percent for Eight Months” Cato Institute, 14 Mar. 2023, https://www.cato.org/blog/aside-lagged-rent-estimates-cpi-inflation-averaged-11-eight-months-2
4. “Inflation fell for the eighth straight month in February” The Mercury News, 14 Mar. 2023, https://www.mercurynews.com/2023/03/14/inflation-fell-for-the-eighth-straight-month-in-february/
5. “As Inflation Rises, Consumers Shrug at Price Increases | Time” TIME, 14 Mar. 2023, https://time.com/6262763/inflation-high-prices-consumers-cpi
6. “Inflation cooled in February, yet remains stubbornly high” CBS News, 14 Mar. 2023, https://www.cbsnews.com/news/inflation-cpi-report-february-2023-03-14
7. “Inflation Fell To 6% In February—But Some Experts Fear Banking Crisis Could Make Prices Worse” Forbes, 14 Mar. 2023, https://www.forbes.com/sites/jonathanponciano/2023/03/14/inflation-fell-to-6-in-february-but-some-experts-fear-banking-crisis-could-make-prices-worse
8. “February’s CPI Inflation Numbers Put Focus On Home Prices” Forbes, 14 Mar. 2023, https://www.forbes.com/sites/simonmoore/2023/03/14/februarys-cpi-inflation-numbers-put-focus-on-home-prices/
9. “Inflation cools but interest rate and recession fears remain” Fox Business, 14 Mar. 2023, https://www.foxbusiness.com/personal-finance/inflation-cpi-increases-february-2023
10. “What Inflation Data Means for the Economy After SBV Collapse” Newsweek, 14 Mar. 2023, https://www.newsweek.com/inflation-sbv-data-economy-collapse-finance-1787619
11. “Breaking News: Headline US Inflation Drops to 6%, US Dollar Undecided” DailyFX, 14 Mar. 2023, https://www.dailyfx.com/news/breaking-news-headline-us-inflation-drops-to-6-us-dollar-undecided-20230314.html