US core inflation beat forecasts for a second month in February, as prices for used cars, air travel and clothing rose, reinforcing the Fed's cautious approach to cutting interest rates.
The so-called core consumer price index, which excludes food and energy costs, rose 0.4% since January, according to government data published yesterday. Compared to a year ago, it advanced 3.8%.
Economists view the core gauge as a better gauge of core inflation than the headline CPI. This measure rose 0.4% since January and 3.2% compared to the previous year, driven by gasoline pricesfigures from the US Bureau of Labor Statistics showed.
After a strong reading in January, the report adds to evidence that inflation is proving persistent, keeping central bankers wary of easing policy too soon. Fed Chair Jerome Powell suggested last week that he and his colleagues are getting closer to the level of confidence they need to start lowering rates.but some officials have expressed that they would like to see a broader decline in prices first.
The core CPI during the last three months increased 4.2% annualizedthe largest increase since June.
“This will probably be seen as a reason to keep the policy on hold for a while longer.”said Kathy Jones, chief fixed income strategist at Charles Schwab. “Through volatility, the downward trend of the inflation appears to be stabilizing and the Federal Reserve would like to see it continue to decline before lowering rates.”
The market reaction was choppy. Initially, traders focused on key details that suggested there were some pockets of easing in inflation., before apparently turning to the solid headline numbers. Treasury yields rose, while the S&P 500 was volatile.
Aside from the upcoming release of the producer price index, this is the last major inflation report the Federal Reserve will see before its meeting next week. With authorities expected to hold interest rates steady for the fifth consecutive meeting, Economists will look for clues about when the central bank will begin to reduce borrowing costs.
Traders still viewed June as the likely first rate cutbut they backed off those bets a bit.
“Even though the February core CPI remained high, it is somewhat comforting that the jump in the January REA turned out to be exceptional and that the trend in housing remains disinflationary. More worrying is the fact that the commodity disinflation appears to have stalled,” says the Bloomberg report.
Housing and gasoline contributed more than 60% of the overall monthly advance, the BLS said. Prices also rose for used cars, clothing, motor vehicle insurance and airfares, which posted the biggest monthly gain since May 2022.
