Topline
Inflation was worse than anticipated in February, even as underlying metrics show signs of progress in the war against price increases.
Inflation is trending downwards, but remains well above the critical 2% level.
Key Facts
Annual headline inflation was 3.2% last month, according to the Labor Department’s consumer price index, worse than consensus economist estimates of 3.1%, where it stood in January.
It’s the fourth consecutive month that inflation was above economist expectations.
Core inflation, which excludes the oft-erratic food and energy subindexes, checked in at 3.8%, above forecasts of 3.7% and declining from January’s surprise increase.
Still, that’s the lowest annualized core inflation reading since May 2021, though the metric still remains well above the 2% level the Federal Reserve has long targeted.
Crucial Quote
“Today’s print reaffirms…the January print was an aberration and the Fed should still feel confident starting their cutting cycle later this year,” Gargi Chaudhuri, BlackRock’s iShares ETFs division’s top Americas strategist, wrote in a note to clients.
Key Background
Last month’s hotter-than-expected consumer price index reading caused the worst stock market selloff in nearly a year. Equities quickly recovered from their dip, as the CPI’s sister personal consumption expenditures inflation index’s January reading was in line with estimates and Federal Reserve Chairman Jerome Powell struck a warm tone in his evaluation of inflation progress. The market expects the downward trend in inflation to cause the Fed to bring down interest rates from the two-decade high they now sit, a change which would help stimulate the economy as lower borrowing costs tend to promote growth. Inflation began its ascent in 2021 following supply chain snarls tied to the Covid-19 pandemic and elevated commodity prices tied to Russia’s invasion, with headline CPI inflation peaking at a 41-year-high of 9.1% in June 2021. Stocks cratered as the Fed brought interest rates from near zero to more than 5% beginning in early 2022, but have recovered strongly over the past year-and-a-half as inflation cooled. The S&P 500 is up more than 40% from its October 2022 bottom, when anxiety crested about the potential of sticky inflation. The bond market has not recovered in the same fashion, as Tuesday’s 4.1% 10-year U.S. Treasury yield was more than twice as high as it was two years ago (higher bond yields means a deterioration in value of bonds).
Further Reading
MORE FROM FORBESKey Inflation Measure Falls To Lowest Rate Since Early 2021By Derek Saul
MORE FROM FORBESUnemployment Rate Spikes To 2-Year HighBy Derek Saul
