February CPI Report: Prices Rise Modestly, Offering Positive Outlook Amidst Inflation Concerns

CPI Report

CPI Report the rebound in inflation and the Federal Reserve’s cautious approach will keep rates on hold for the time being. The Labor Department’s Bureau of Labor Statistics Tuesday reported the consumer price index ( CPI Report), which measures a wide range of goods and services’ costs, increased 0.4% in the month ahead and 3.2% of its year.
On both accounts that are in line with economists ‘ expectations, with the Dow Jones consensus Fancy at 3.1% for the annual rate. Excluding volatile food and energy prices, the core  CPI Report increased by 0.4% on the month and was up by 3.8% in the year, both were higher than the expected one-tenth of a percentage points.
With the 12-month pace below the May peak, it is still running well above the Fed’s 2% target when it holds its two-day policy meeting next week. A 2.3% rise in energy costs helped lift the headline inflation reading. Food prices were unchanged from April, while shelter costs rose another 0.4%. The BLS said that energy and shelter constituted more than 60 percent of the gain. Gasoline dysfunction increased by 3.8%, while the rental equivalent value of the owner, a hypothetical measure of homeowners that could be rented for their properties, was increased by 0.4%.
Robert Frick, corporate economist at Navy Federal Credit Union, said, “Inflation continues to churn above 3%, and once again shelter costs were the main villain. With home prices expected to rise this year and rents falling only slowly, the long-awaited fall in shelter prices isn’t coming to the rescue anytime soon. Reports like January’s and February’s aren’t going to prompt the Fed to lower rates quickly.
The nominal rates of airline fares (+3.6%), apparel (+0.6%), used vehicles (+0.5%). However, the prices for medical care services which partially fueled a higher-than-expected rise in January CPI Report, fell by 0.1% last month Overall, both headline and core were 0.1 percentage point higher year-over-year than the CPI Report in the month of January.
Wall Street opened stronger after the report, with major stock averages moving and Treasury yields higher in early trading.
While the 12-month rate has slowed the pace from the spring, the inflation remains well above the 2% goal of the Fed, one week out of its two-day policy meeting.
In recent weeks, officials from the Fed had both conveyed that rate decreases could come this year and expressed caution as well as the battle against the high prices not slowing down too early. According to the January meeting statement clues, policymakers need “greater confidence” that inflation is rotating back to its target.
However, Chair Jerome Powell did echo those concerns last week in congressional testimony, though he also noted that the Fed is probably “not far” from the point where it can start dialing back monetary policy. Tuesday’s report “leaves Fed officials some way from attaining the ‘greater confidence’ needed to begin cutting interest rates,” said Paul Ashworth — chief North America economist at Capital Economics.
In financial markets, the change in the Fed’s stance from its supposed policy pivot of late 2023, meant a repricing on the cadence of rate cuts. Where futures traders began the year adding pressure on the Fed to start delivering the cuts in March, targeting six or seven in total on the year, the first cut is now pushed out to June, with two or three expected to follow assuming cuts of a quarter of a percentage point each.
Being able to focus on incoming data as a bustling economy has kept the fed’s policy makers from having to rush to lower rates. The GDP expanded at a 2.5% pace, annualized, in 2023, and the Atlanta Fed’s GDP Now tracker has it continuing to grow at a 2.5% pace in the first quarter of 2024.
And one of the key ingredients in that has been an especially resilient consumer. Another 275,000 nonfarm jobs were created in February, though oddly enough the bulk of them were part-time ones, and the unemployment rate edged up a bit, to 3.9 percent.
Its greatest strength – arguably its growth in spite of successive aggressive rate hikes – is also why the Fed must consider faster rate hikes. This is also why there are concerns that inflation may be more persistent than projected.
Housing strains are of particular concern. Shelter accounts for about one-third of the CPI Report weight and its deceleration has been slow according to the BLS measure at least. Officials see rental prices decelerating through the year and other gauges of home ownership not included in the CPI Report computation of owner’s equivalent rent, or rent estimates of homeowners, have also decelerated.