Consumer Price Index increases 3 2% in February vs. 3.1% expected

The inflation risk premium is a measure of the premium investors require for the possibility that inflation may rise or fall more than they expect over the period in which they hold a bond. Both the real risk premium and the inflation risk premium can be interpreted as investors’ assessment of risk. Last month, CPI data revealed that annual inflation eased substantially in October from 3.7% to 3.2%. A core measure that strips out volatile food and energy items also dipped to 4% from 4.1%. In addition to the headline data, there is also something called “core CPI” inflation.

  1. That could have helped push up “supercore” inflation – a key measure of services prices that excludes housing and that the Fed is particularly scrutinizing – to 0.39% from 0.25% the previous month, Barclays says.
  2. The inflation risk premium is a measure of the premium investors require for the possibility that inflation may rise or fall more than they expect over the period in which they hold a bond.
  3. The CPI report includes a number of tables that break down how various goods and services increased over the past month, as well as the past 12 months.
  4. Excluding food and energy, the increase for core inflation is forecast at a 0.3% gain, also one-tenth of a percentage point above the previous month.

That may encourage the Fed to be less aggressive with rates in the face of other economic risks beyond inflation. Industry data strongly suggests home pricing will ultimately cool, but we haven’t seen that in the CPI data yet due to statistical lags in how shelter costs are calculated. When and if shelter costs turn, that may be sufficient to bring inflation much closer to the Federal Reserve’s 2% goal. Currently markets expect the Fed to hold rates steady at that June meeting with a small chance the Fed elects to make another small hike in interest rates. That would likely only occur if inflation came in well above expectations.

The Fed’s Reaction

This means the cost of a basket of goods and services in the U.S. increased by an average of 3.2% from February 2023 to February 2024. This was higher than January’s figure before adjustment, which came in at 3.1%. “The index for shelter rose in February, as did the index for gasoline. Combined, these two indexes contributed over sixty percent of the monthly increase in the index for all items,” the BLS noted in its press release. If month-on-month inflation remains strong, then that will encourage the Fed to consider a 0.25-percentage-point hike when it meets in May.

When is the Next CPI Report?

That’s not so terrible but it also wouldn’t give the Fed cause to let down its guard. The bank’s economists now expect core CPI to run at a 3.3% rate this year, up from the previous 2.8% estimate. Focusing on the core personal consumption expenditures price index, the preferred Fed gauge, Wells Fargo sees inflation at 2.5% for the year, versus a prior estimate of 2.2%. CPI gauges the overall health of the U.S. economy, and it’s the most popular economic indicator that people use to demonstrate how much prices are rising or falling. Though inflation peaked back in 2022, the fact remains that it’s still too high for the central bank’s comfort. That’s why the Consumer Price Index or CPI report has become pretty much the star of the economic data calendar.

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Nomura, meanwhile, reckons that both used car prices and airfares moved higher last month after falling previously. Inflation has slowed significantly since hitting a 40-year high of 9.1% in June 2022 amid COVID-related product shortages and consumer demand surges. But Wells Fargo estimates that energy services rebounded 4% in February, leading to an increase at the pump, where a gallon of regular gas is up about 20 cents, or more than 6%, from a month ago, according to AAA. While the CPI may seem like complicated economic data, it impacts consumers in a variety of ways, from capturing their purchasing power to determining eligibility and payment amounts of government programs.

Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%. Inflation in the United States (US) is forecast to rise at an annual pace of 3.1% in February, matching the increase recorded in January. The Core CPI inflation rate, which excludes volatile food and energy prices, is forecast to tick down to 3.7% from 3.9% in the same period. Inflation in the US, as measured by the change in the Consumer Price Index (CPI), rose to 3.2% on a yearly basis in February from 3.1% in January, the US Bureau of Labor Statistics (BLS) reported on Tuesday.

When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. Nowcasts suggest the CPI numbers may show an improving outlook, with estimated inflation running at a little over a 5% annual rate and an estimated month-on-month rise in prices of 0.3%. However, core inflation may be more of a concern running at an estimated 0.45% month-on-month once food and energy are stripped out. That’s because energy costs are expected to have generally fallen in the March report, helping bring inflation down in the headline numbers. Inflation measures the rise in the price of a representative basket of goods and services.

The CPI report includes a number of tables that break down how various goods and services increased over the past month, as well as the past 12 months. Everyday items, such as meat, vegetables, cleaning supplies and even clothing are tracked. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

The basket of goods and services used for CPI includes popular items that Americans regularly purchase. The current cost of the basket is compared to its cost in the prior year, and then multiplied by 100 to determine the percentage. The BLS refers to a variety of sources to calculate CPI, including the prices of goods and services from about 23,000 retail and service establishments throughout the U.S. It also collects data from about 50,000 landlords and tenants to determine the changes in the price of rent. A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. As a senior writer at AOL’s DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.

Investors could see such data as an opportunity to unwind USD shorts following the previous week’s sell-off. The Fed may need to wait for high rates to have an effect on inflation rather than raise them further. For example, there are concerns about the housing market, especially on the West Coast, and though the jobs market has been strong, that could be starting to change based on recent data.

But the cost of services — especially rent, car insurance, auto repairs and medical care — is likely to keep marching higher, Barclays says. That’s at least partly because of rapidly rising wages rooted in COVID-induced labor shortages. Rising gasoline prices likely put a floor under inflation in February, potentially reinforcing the Federal Reserve’s decision to take a go-slow approach street smart finance » blog archive » trade your way to financial freedom with interest rate reductions. CPI is calculated by tracking the change in the prices of a fixed basket of goods and services. The $100 you just spent at the grocery store bought 4% less than it did one year ago. The consumer price index (CPI) helps answer this question, as it measures inflation, the economic phenomenon that slowly erodes the purchasing power of your hard-earned dollars.

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