Inflation Remains High, but Rate Hike Speculation Subsiding
The Consumer Price Index (CPI) released by the Bureau of Labor Statistics on Tuesday showed that inflation in the US remains stubbornly high, but is gradually cooling off. The CPI rose 0.4% in February, with core CPI, which excludes food and energy prices, increasing 0.5%.[0] Year-over-year, the headline rate fell from 6.4% to 6%, while core inflation moderated from 5.6% to 5.5%.[1]
The data has sparked a wave of speculation that the Federal Reserve may be preparing to raise interest rates by 0.5 percentage points at its meeting next week, with the CME Group estimating that a 25 basis point rate hike is now widely expected. However, the recent bank failures have put financial stability issues at the forefront, which could cause the Fed to prioritize stability over inflation.
The core number, which excludes food and energy, came in at 0.5%, higher than the 0.4% consensus.[2] The year-on-year rate was 5.5[3] The Federal Reserve, which is monitoring the stickiness of inflation, saw services inflation rise by 0.1 percentage points to 0.8% in the latest month. Super-core inflation, which excludes housing, increased 0.2% in February and 3.7% from a year ago.[4]
In a statement, Federal Reserve Chair Jerome Powell said the US still has a “long way to go” in reducing inflation, implying that the Fed would continue to raise interest rates in the coming months.[5] Despite the decline in inflation, the rate remains far from the Fed’s target rate of 2%, something Powell has expressed concern over.
However, analysts believe the Fed will prioritize financial stability over inflation, and are predicting that the central bank will hold off on a rate increase next week in order to let the dust settle. Nevertheless, a 25 basis point rate hike is widely expected as the Fed works to cool the economy and ease inflation.
The Federal Reserve's 2% inflation target has not been met, as evidenced by the data, yet expectations for rate hikes have decreased due to worries regarding the potential aftermath of the unfolding banking crisis. Nevertheless, analysts expect inflation to fall rapidly in the second half of 2023 as the decline in house prices, which is leading to a flat lining in new rent agreements, eventually feeds through into the CPI.[6]
0. “US inflation cools to lowest level since September 2021” Seeking Alpha, 14 Mar. 2023, https://seekingalpha.com/news/3947226-inflation-rises-in-line-with-forecast
1. “US financial stability trumps near-term inflation” ING Think, 14 Mar. 2023, https://think.ing.com/articles/us-financial-stability-trumps-near-term-inflation/
2. “Stock market news today: Stocks, regional banks rally as after CPI print” Yahoo News, 14 Mar. 2023, https://news.yahoo.com/stock-market-news-today-live-updates-march-14-2023-112356261.html
3. “Stock Market Today Posts Gains; Meta Platforms 7% Jumps On Job Cuts” Investor's Business Daily, 14 Mar. 2023, https://www.investors.com/market-trend/stock-market-today/stock-market-looks-for-bank-bargains-united-airlines-stock-sinks/
4. “Inflation gauge increased 0.4% in February, as expected and up 6% from a year ago” CNBC, 14 Mar. 2023, https://www.cnbc.com/2023/03/14/cpi-inflation-february-2023-.html
5. “US inflation slows to 6% annual rate amid looming banking crisis” The Guardian, 14 Mar. 2023, https://www.theguardian.com/business/2023/mar/14/us-inflation-slows-banking-crisis
6. “February CPI Report Progress on Inflation Stalled, Fed Rate Hike Path Intact” Morningstar, 14 Mar. 2023, https://www.morningstar.com/articles/1144105/february-cpi-report-progress-on-inflation-stalled-fed-rate-hike-path-intact
