February CPI: Here’s what to expect from a key inflation reading

Meanwhile, services inflation was driven up chiefly by higher airline fares—partly a pass-through of higher jet fuel prices. In addition to the headline data, there is also something called “core CPI” inflation. This measure offers a more stable reading on inflation because it strips out food and energy prices from the calculation. Prices of these goods tend to see sizable and unpredictable changes month to month that have little to do with consumer demand. This key economic metric is based on prices that consumers pay for goods and services throughout the U.S. economy. The percentage change in CPI over a period of time is referred to as the inflation rate.

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. Gold price rises to near $2,170 per troy ounce, reclaiming losses from the previous two sessions. The uptick in Gold prices can be attributed to a weaker USD, which is influenced by the dovish sentiment surrounding the Fed’s stance on interest rate trajectory.

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%. Within the underlying series, the Fed and many forecasters expect shelter costs to cool in the coming months.

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. That may encourage the Fed to be less aggressive with rates in the face of other economic risks beyond inflation.

Despite inflation cooling in many categories, especially for goods, services costs continue to rise in many categories. The Fed hopes to see services prices cool, enabling it to cut interest rates with greater confidence that inflation is subdued. The Atlanta Fed’s Tracker shows wage growth cooling providing an early signal that services prices may ultimately decelerate. The November CPI report is expected to show that consumer prices were roughly flat on a monthly basis for a second straight month, lowering the annual gain to 3.1%, according to Barclays and Nomura. The drop likely was driven by another decline in gasoline prices and a modest uptick in food costs, the two research firms say.

  1. 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.
  2. Gold price rises to near $2,170 per troy ounce, reclaiming losses from the previous two sessions.
  3. “When is the next CPI report?” was a question no one was asking back in the days of 2% inflation readings.
  4. The current cost of the basket is compared to its cost in the prior year, and then multiplied by 100 to determine the percentage.
  5. At the start of the year, traders expected the Fed to start cutting rates in March.
  6. Though this data isn’t what’s focused on in news reports, it exposes underlying trends in short-term price changes.

Information about food and energy price increases are both summarized in the beginning of the report, since these two categories directly impact consumers. Core inflation, which refers to inflation minus food and energy prices, comes next. The monthly CPI report includes inflation rates for various goods and services, as well as the rate of inflation in various regions across the United States.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. 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%.

Is inflation expected to go down?

In his semi-annual testimony before the US Congress, Federal Reserve Chairman Jerome Powell said that the economic outlook was uncertain and that the ongoing progress toward the 2% inflation goal was not assured. 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.

February CPI Report: What Higher-Than-Expected Inflation Means for Fed Rate Cuts

The Fed has generally been happy with how inflation has cooled but wants to see the trend continue before contemplating what could be its first interest rate cut of this cycle. The Fed is concerned that a weakening jobs market may force its hand in prompting interest rate cuts. On recent reports, jobs data has been relatively strong, suggesting less restrictive interest rates are not harming employment in aggregate. Traders also expect fewer rate cuts in 2024 than they did just a few months ago. In January, traders had been betting on six cuts, which would have taken the funds rate down to a target range of 3.75%-4.00%. Now the betting is almost evenly split between four or five cuts, taking the rate down no lower than a 4.25%-4.50% target.

How CPI Affects You

Markets were rattled in January when the CPI data came in higher than expected, and Fed officials shifted their rhetoric afterward to a more cautious tone about easing policy. While Tuesday’s CPI report is likely to show that overall inflation drifted down further in November, an underlying measure that the Fed watches more closely likely ticked up again, economists say. That probably wouldn’t spur the Fed to raise rates but it could lead officials to at least keep that option open and push back on the idea that rate cuts will be moved up, forecasters say. Markets would also love to see inflation data that helps coax officials to speed up anticipated interest rate cuts in its forecast for next year. The prospect of accelerated rate cuts – which typically make stocks more attractive than bonds — already has sparked a torrid market rally the past six weeks. Inflation nowcasts from the Cleveland Fed suggest a 0.5% month-on-month increase in core CPI for April, perhaps driven in part by rising energy costs during the month.

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. Markets desperately want the Fed to stop raising interest rates – and especially look forward to a time when the central bank pivots to rate cuts – but that won’t happen until after inflation is under control. There’s also https://www.day-trading.info/finspreads-introduces-its-trading-academy-of/ the very real fear that rising rates could cause the economy to fall into a recession. One reason that core inflation may have edged higher in November is that hotel rates were likely flat after declining four of the past five months, Barclays says. January’s CPI data will be the first of two data releases that the Fed receives before its March 20 interest rate decision.

Caldwell says that the February CPI report suggests a PCE inflation reading for February of 0.3% excluding food and energy, or roughly 3.7% on an annualized basis. “That’s certainly early morning range breakout indicator too high for the Fed to contemplate cutting rates,” he says. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors.

When is the Next CPI Report?

That’s at least partly because of rapidly rising wages rooted in COVID-induced labor shortages. A 0.3% rise will be broadly acceptable, but a lower result would be incrementally more likely to accelerate an interest rate cut. Rising gasoline prices likely put a floor under inflation in February, potentially reinforcing the Federal Reserve’s decision to take a go-slow approach with interest rate reductions. CPI is calculated by tracking the change in the prices of a fixed basket of goods and services.

The reason for the disconnect is that the CPI uses a series of panels to calculate housing costs, which can add a lag to the data of at least 6 months at turning points in the cycle, just as we may be seeing now. Markets anticipate that the Fed will cut interest rates by late spring or early summer. As the first of two CPI reports before the Fed meets in March, January’s data is unlikely to be decisive. But a sustained period of subdued inflation could suggest interest rates may be cut, perhaps when the Fed meets in May. Still, the market’s expectation is that interest rates will come down as inflation data remains relatively benign.

Meanwhile, core CPI, which excludes food and energy costs, rose 3.8%, topping expectations of a 3.7% increase. 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. Annual Core CPI, which excludes volatile food and energy prices, increased 3.8% in the same period, below the January increase of 3.9% but https://www.forexbox.info/most-popular-forex-technical-analysis-software/ above the market forecast of 3.7%. Economists expect that prices across a broad spectrum of goods and services rose 0.4% on the month, just ahead of the January pace for 0.3%, according to the Dow Jones consensus. 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. Inflation measures the rise in the price of a representative basket of goods and services.

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