The February consumer price index (CPI) report came in hotter than expected this morning on rising gasoline costs.
The closely watched inflation gauge showed prices jumped 0.4% from January, up 3.2% from the same time last year. This is higher than projections of a 3.1% reading.
Core inflation, which excludes the volatile Food and Energy categories, climbed 0.4% in February, up 3.8% from last year. This is also higher than forecasts of a 0.3% jump on a 3.7% annual increase.
Gasoline prices were the difference maker this time around. Gasoline costs rose 3.8% last month, a sharp reversal from January’s deflationary -3.3% reading. Energy costs overall climbed 2.3% in February, another dramatic swing from months prior. In January, Energy costs actually decreased 0.9%.
Today’s CPI confirms that the last leg of the war on inflation may prove trickier than hoped.
If you recall, the January CPI also came in hot, showing a 0.3% increase in prices from December, representing price growth of 3.1% year over year. This was also higher than the 2.9% forecast. The core CPI rose 3.9% annually in January, hotter than estimates of a 3.4% increase.
CPI Report Continues to Weigh on Rate-Cut Schedule
As usual, the importance of the CPI report lies in the Federal Reserve.
Back in January, the central bank stated it wanted to wait for more “good inflation data” before easing rates back down. Unfortunately, it’s unlikely that today’s report will trigger the rapid pivot Wall Street has been hoping for.
Though price growth has fallen sharply from its peak in mid-2022, inflation has proved surprisingly resilient. This has fueled concerns that the Fed may delay — or outright cancel — its proposed 2024 rate cuts.
That said, Fed Chair Jerome Powell eased some concerns at his Capitol Hill visits last week. Powell assured lawmakers that the central bank was “not far” from pulling the trigger on rate cuts.
“We are waiting to become more confident that inflation is moving sustainably down to 2%. When we do get that confidence, and we’re not far from it, it will be appropriate to begin to dial back the level of restriction so that we don’t drive the economy into recession.”
The Bottom Line
With the March policy meeting set for next week, most of Wall Street has accepted that the Fed will likely continue to play the waiting game this month.
The CME FedWatch Tool currently prices in just a 1% chance of a rate cut this month, its lowest probability so far in 2024. It also offers just a 13% chance the Fed lowers rates at the May policy meeting. Though it still maintains a 70% probability that it cuts rates in June.
“In our view, unless inflation starts to drop and come in below forecast, most notably CPI and Core PCE, then we expect the Fed to take a patient and measured approach to any potential rate cuts,” noted Larry Tentarelli, chief technical strategist at Blue Chip Daily Trend Report. “If there is any notable weakness in the jobs market, that would increase the chance of a Fed rate cut by June.”
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
