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US CPI Rises 2.4% Annually in February, Matching Forecasts

U.S. consumer prices rose 2.4% annually in February, matching forecasts, with core inflation steady at 2.5%. The report showed modest increases in shelter and services but a sharp 1.3% monthly rise in apparel due to tariffs. This data precedes an oil price spike from the U.S.-Israel conflict with Iran, which may elevate inflation in March. Markets reacted cautiously, and the Federal Reserve is projected to hold interest rates steady at its March 18 meeting. Economists note that underlying inflation pressures persist, despite the temporary energy shock.

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US CPI Rises 2.4% Annually in February, Matching Forecasts

U.S. consumer prices increased by 2.4% annually in February, meeting expectations, while core inflation held steady at 2.5%. The report indicates modest gains in shelter and services, with apparel prices surging due to tariff pressures, and precedes potential inflation impacts from rising oil prices following the U.S.-Israel attack on Iran.

February CPI Overview

  • The Consumer Price Index (CPI) rose 0.3% month-over-month and 2.4% year-over-year, aligning with Dow Jones consensus estimates.
  • Core CPI, excluding food and energy, increased 0.2% monthly and 2.5% annually, also in line with forecasts.

Sectoral Price Changes

  • Shelter: Up 0.2% for the month, annual rate at 3%; rent rose 0.1%, the smallest monthly increase since January 2021.
  • Apparel: Jumped 1.3% monthly, the largest since September 2018, amid tariff pressures.
  • New vehicles: Steady, up 0.5% year-over-year.
  • Energy: Rose 0.6% monthly, annual increase of 0.5%.
  • Food: Up 0.4% monthly, 3.1% annually; egg prices fell 3.8%, annual drop of 42.1%.
  • Used vehicles and auto insurance declined.

Market and Federal Reserve Response

  • Markets reacted minimally initially, with stock futures mixed and Treasury yields higher.
  • The Federal Reserve is widely expected to maintain interest rates at its March 18 meeting.
  • Traders anticipate the next rate cut in September, with a 43% probability of a second cut by year-end, per CME Group's FedWatch tool.
  • The Fed is monitoring the effects of prior rate cuts and geopolitical tensions on the economic outlook.

Geopolitical Risks and Inflation Outlook

  • The data predates an oil price surge after the U.S.-Israel attack on Iran, with crude briefly exceeding $100 per barrel.
  • Higher oil prices could transmit to gasoline and consumer goods, potentially boosting headline inflation in coming months.
  • Economists view the oil shock as temporary, likely to abate if the Iran situation stabilizes; crude was up about 4% in Wednesday trading.
  • Tariff impacts continue to influence core goods inflation, while services inflation outside housing remains elevated.
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