The CPI Inflation Report February has shown that inflation has increased last month, pushing the Federal Reserve to stay on its plan of waiting until at least summer before considering interest rate cuts.
The CPI Inflation Report February 2024
According to the data released by the Bureau of Labour Statistics of Labor Department on Tuesday, the CPI report, which measures the cost of goods and services, increased by 0.4% for the month and 3.2% compared to a year ago. While the monthly increase was as expected, the annual rate slightly exceeded the forecast of 3.1% from the Dow Jones consensus.
Excluding the changing prices of food and energy, the core CPI increased by 0.4% for the month and increased by 3.8% compared to the previous year. These figures were slightly higher than the forecast by one-tenth of a percentage point.
Although the 12-month pace of inflation has decreased from its peak in mid-2022, it is still significantly above the Federal Reserve’s 2% target as the central bank nears its two-day policy meeting next week.
According to the CPI Inflation Report in February, there was an increase in headline inflation due to a 2.3% increase in energy costs. Food prices remained unchanged for the month, while the cost of shelter increased by another 0.4%.
The Bureau of Labor Statistics (BLS) found that more than 60% of the total increase came from higher energy and shelter costs. Gasoline prices increased by 3.8% for the month, while owners’ equivalent rent, which estimates what homeowners could earn by renting their properties, increased by 0.4%.
Airline fares increased by 3.6%, apparel prices rose by 0.6%, and used vehicles increased by 0.5%. Medical care services, which contributed to a higher CPI in January, decreased by 0.1% last month.
Based on the CPI Inflation Report in February, compared to January, the year-over-year increase for headline CPI increased by 0.1 percentage points, while the core CPI was one-tenth of a point lower.
Rate Cuts in 2024
Wall Street started the day with positive gains after the report, with major stock averages and Treasury yields showing positive trends in early trading.
According to the CPI Inflation Report in February, though the 12-month inflation rate has decreased from its peak in mid-2022, it remains above the Federal Reserve’s 2% target as the central bank approaches its two-day policy meeting.
In the past few weeks, Federal Reserve officials have hinted at the possibility that rate cuts will probably happen this year while also asking people to stay cautious in the fight against current high prices. Moreover, the statement released after January has shown that the officials need more data before they can introduce the rate cuts.
During congressional testimony last week, Chair Jerome Powell stressed these concerns and said that the Fed is probably not far from where it can start to ease monetary policy.
According to Paul Ashworth, Chief North American Economist at Capital Economics, the February CPI Inflation Report that was released on Tuesday shows that the Federal government requires more confidence before it can start cutting rates.
This change in the Fed’s opinion regarding the rate cuts after the release of the February CPI Inflation Report on Tuesday has changed the prediction of the pace of rate cuts. While futures traders initially anticipated cuts to begin in March with six or seven in total for the year, they have now delayed the first reduction to happen in June, with expectations of two or three cuts, each likely to be a quarter percentage point.
A strong economy has allowed the Federal Reserve to carefully consider incoming data, giving them the time to carefully rethink before taking any decision regarding the rate cuts. Gross domestic product (GDP) grew at a 2.5% annualized rate in 2023, and the Atlanta Fed’s GDPNow tracker has also reported a 2.5% pace for the first quarter of 2024.
One of the major reasons behind the strong US economic growth is the consumer base, which is being supported by a job market. In February, the economy added 275,000 nonfarm jobs, although most of the increase was in part-time positions, and the unemployment rate increased to 3.9%.
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