Washington: U.S. consumer prices rose steadily in February on the back of rising gas and housing costs, suggesting some degree of persistence in inflation and further reducing the likelihood of the Federal Reserve cutting interest rates by June. are doing.
Despite the second straight month of solid inflation reported by the Labor Department on Tuesday (March 12), the composition of the report remained consistent with a disinflationary trend. Americans fed up with inflation found some relief in supermarket and medical costs.
Shelter costs helped push prices higher last month, but housing inflation slowed after spiking in January. Some economists said the Consumer Price Index (CPI) report added some “noise” because it was difficult to adjust the data for price increases at the beginning of the year.
U.S. central bank officials, including Fed Chair Jerome Powell, have said they are in no hurry to start lowering borrowing costs. The stubbornly rising cost of living is one of the key issues in the November 5 US presidential election.
“While we still believe the disinflationary situation remains intact and the seasonal pattern to begin the year is pushing inflation higher, the Fed is seeking further confidence that inflation will sustainably move towards 2%. , that confidence is not found in this report,” said Conrad Dequadros, senior economic advisor at Briand Capital.
The CPI rose 0.4% last month after rising 0.3% in January, according to the Department of Labor’s Bureau of Labor Statistics (BLS). Gasoline prices rebounded 3.8% after falling 3.3% in January. Shelter prices, including rent, increased by 0.4%, following a 0.6% increase in the previous month.
These two categories contributed more than 60% to the monthly increase in CPI. Food prices were flat after rising 0.4% in January as prices for dairy products, fruit, vegetables and non-alcoholic drinks fell. However, prices for cereals and bakery products rose, and meat, fish and eggs became slightly more expensive.
The CPI rose 3.2% in the 12 months to February, after rising 3.1% in January.
Economists polled by Reuters expected the CPI to rise 0.4% from the previous month and 3.1% from a year earlier. The annual rate of increase in consumer prices has slowed from a peak of 9.1% in June 2022, but progress has stalled in recent months.
President Joe Biden used the report to drum up support for his US$7.3 trillion (RM34.15 trillion) budget announced on Monday. “We still have work to do to lower costs and give the middle class a fair chance,” Biden said in his statement. “The budget I proposed yesterday will help Big Pharma pay for lower prescription drug costs.”
Financial markets continue to expect the Fed to cut interest rates in June. Starting in March 2022, the U.S. central bank will raise interest rates by 525 basis points, to the current range of 5.25% to 5.50%. Wall Street stocks rose on Tuesday. The dollar rose against a basket of currencies. US bond prices fell.
Inflation accelerated in January, largely due to price hikes by service providers earlier in the year, which economists said were not adequately addressed by the model the government used to remove seasonal fluctuations from the data. Stated.
Owner-equivalent rent (OER), which is a measure of the amount homeowners pay in rent or the income they receive from renting out a property, and which is a deviation from rent, also rose. This was partly the result of a change in methodology by the government.
The BLS hosted a webinar last week to discuss basic methodologies related to January OER and rent data.
The CPI, which excludes volatile food and energy, rose 0.4% in February after rising by the same percentage in January. Shelter was also the main driver of the so-called core CPI. Rents rose 0.5% after rising 0.4% in January.
However, OER rose 0.4% after rising 0.6% in the previous month. The latest data suggested that the divergence between rent and OER metrics that had raised concerns about the inflation outlook for shelters was a temporary event.
Medical costs remained flat from the 0.5% rise in the previous month. Prices for hospital services fell by 0.6%, while prices for dental services rose by 0.4%. Airfares rose 3.6%, while auto insurance rose 0.9%.
Services excluding energy rose 0.5% after rising 0.7% in January. The rate of increase in so-called super core services, excluding shelters, slowed to 0.5% from 0.8% the previous month.
Commodity prices rose 0.4% after falling 0.3% in January. Rising prices of clothing provided a tailwind. Prices of used cars and trucks rose 0.5%.
Core goods prices rose 0.1%, the first increase since May last year, after falling 0.3% in January. Economists were divided on whether the trend of disinflation in goods that contributed to last year’s decline in inflation has run its course.
“The Fed says it needs to further ease service inflation in case goods deflation ends. February’s CPI report shows that trend,” Bank of America Securities said. said economist Stephen Juneau. “We read that inflation trends in February continue to support the outlook for a rate cutting cycle starting in June.”
Core CPI rose 3.8% in the 12 months to February. The year-on-year increase was the smallest since May 2021, following a 3.9% rise in January. Fixed-price CPI, a weighted basket of items whose prices change more slowly, rose an annualized 4.0% in February after rising 6.7% in January, according to a separate Atlanta Fed report.
The US central bank tracks the price index of personal consumption expenditures towards a 2% inflation target. These measures are being implemented at a slower pace than his CPI.
Job growth accelerated in February, but the unemployment rate rose to a two-year high of 3.9% and annual wage inflation slowed slightly.
Fewer workers are changing jobs, which over time could lead to slower wage growth, the main driver of services inflation.
Based on CPI data, economists estimated that the core PCE price index would rise 0.2% in February after rising 0.4% in January. This would reduce the rate of increase in core inflation to 2.7% from 2.8% in January.
“Good news is likely to come,” said Ryan Sweet, chief U.S. economist at Oxford Economics. – Reuters
