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- Inflation in the US as measured by the consumer price index slowed again.
- The consumer price index rose 6.0% year-over-year in February, less than January’s year-over-year change of 6.4%.
- The cooldown should be welcome news to the Fed as it prepares for its interest rate decision next week.
Elevated inflation continued to fall in February, based on year-over-year changes, and matched the forecast from economists.
According to Tuesday’s consumer price index (CPI) report from the Bureau of Labor Statistics, CPI soared 6.0% year-over-year in February. That shows inflation continuing to cool down following January’s 6.4% increase from a year earlier and matching expectations from economists surveyed by Bloomberg.
CPI climbed 0.4% month-over-month from January to February, according to seasonally adjusted data, matching the 0.4% forecast.
Core CPI, which excludes volatile food and energy prices, rose 5.5% in February from a year ago in February 2022. Surveyed economists anticipated a slowdown — from 5.6% to 5.5%.
Additionally, core CPI increased by 0.5% over the month in February from January, above the 0.4% forecast and up from January’s increase of 0.4%. With the hotter-than-expected monthly increase in the core CPI, this can make the Fed’s next decision on rate hikes trickier.
The index for shelter isn’t slowing down: it soared 8.1% in February from February 2022. Seasonally adjusted data shows that index ticked up by 0.8% from January to February. Tuesday’s news release from the Bureau of Labor Statistics stated that the shelter index “was the largest contributor to the monthly all items increase, accounting for over 70 percent of the increase.”
Additionally, the year-over-year change for the food index was 9.5%. More specifically, the change for the index for food at home was 10.2%, higher than the year-over-year change of 8.4% for food away from home.
The latest inflation figures come a week before the Federal Reserve meets to decide whether and how much to raise interest rates in its ongoing war against rising prices. While the Fed will likely appreciate the continuing slowdown in inflation, developments in the labor market and banking sector are making the Fed’s fight against inflation more complicated.
The CPI data comes on the heels of the Bureau of Labor Statistics’ Friday release showing that the US added 311,000 jobs in February. Friday’s news release also showed the unemployment rate and labor force participation rate rose.
Nick Bunker, economic research director for North America at Indeed Hiring Lab, told Insider after Friday’s jobs report that while the report had “good news” for the Fed, questions loom.
“Does it suggest, is this good news coming at a fast enough pace? Are things trending in the right direction quickly enough for the Fed?” Bunker said.
The Fed will also have to confront a new round of financial turmoil after regulators recently closed Silicon Valley Bank and Signature Bank. Charles Schwab’s chief investment strategist Liz Ann Sonders told CNBC that “it’s hard to separate the effect of the jobs report on the change in expectations for a 50 basis point hike and obviously the SVB situation.”
“I think it may have a bit more to do with the latter than the former,” she said. “But I think this is clearly an example of something breaking. You know the old adage of the Fed tightens until something breaks.”
Goldman Sachs doesn’t anticipate an interest rate hike “in light of recent stress in the banking system.” According to reporting from Markets Insider, top economist Mohamed El-Erian also recently tweeted about what the closure of Silicon Valley Bank may mean for the Fed’s “battle” on inflation.
“With the US #SVB-related bailout going beyond what many expected, markets see it as more than protecting deposits and small #tech,” El-Erian wrote on Twitter. “The immediate move in 2-year bonds points to the view that,by treating this as a systemic threat,the #Fed will also retreat from its #inflation battle.”
This is a developing story. Please check back for updates.