Inflation rose in February but was in line with expectations, providing key input on whether the Federal Reserve continues to raise interest rates.
The Consumer Price Index rose 0.4% for the month, putting the annual inflation rate at 6%, the Labor Department said on Tuesday. Both metrics are in line with the Dow Jones estimates.
Excluding volatile food and energy prices, core CPI rose 0.5% in February and 5.5% on a 12-month basis. The monthly reading was slightly ahead of estimates of 0.4%, but the annual level was in line.
Markets were volatile following the release, with futures tied to the Dow Jones Industrial Average pointing to a positive open.
A decrease in energy costs helped keep the headline CPI in check. The sector fell 0.6% month-on-month, reducing the year-on-year increase to 5.2%. Food prices increased by 0.4% and 9.5% respectively.
Accommodation costs, which make up a third of the index’s weighting, rose 0.8%, bringing the annual gain to 8.1%. Fed officials mostly expect related spending, such as housing and rent, to slow during the year.
The CPI measures a wide range of goods and services and is one of several key measures used by the central bank when making monetary policy. Wednesday’s producer price index report will be the last inflation-related data point policymakers will look at before meeting March 21-22.
Going into the release, markets were widely expecting the central bank to approve another 0.25 percentage point increase to its benchmark federal funds rate.
However, the turmoil in the banking sector in recent days has fueled speculation that the central bank may signal an imminent halt to rate hikes as officials observe the impact of a series of tightening measures over the past year.
Markets on Tuesday morning were pricing in a peak, or terminal, rate of around 4.92%, meaning the upcoming hike would be the last. Futures pricing is volatile, however, and unexpectedly strong inflation reports this week could cause a revaluation.
Either way, market sentiment has changed dramatically.
Federal Reserve Chairman Jerome Powell told two congressional committees last week that the central bank is prepared to raise rates more than expected if inflation does not ease. This led to a wave of speculation that the central bank could add a 0.5 percentage point hike next week.
However, the collapse of Silicon Valley Bank and Signature Bank over the past several days has paved the way for a more restrained view of monetary policy.
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