Another hotter-than-expected CPI report muddies the timing for the first interest rate cut
By Dan Burrows — Kiplinger Report
A data-dependent Federal Reserve is likely to push back the timing of its first interest rate cut after Tuesday’s release of the February Consumer Price Index (CPI) revealed that core inflation accelerated for a second consecutive month.
Headline inflation rose 0.4% last month, the Bureau of Labor Statistics said Tuesday. Although that matched economists’ forecast, it represented an uptick in prices from the 0.3% rate seen in January. On an annual basis, headline inflation increased 3.2% vs 3.1% a month ago. Economists were looking for inflation to increase 3.1% on a trailing 12-month basis.
Core CPI, which strips out volatile food and energy costs and is considered to be a better predictor of future prices, hit 0.4% month-to-month, topping the 0.3% forecast. On an annual basis, core CPI rose 3.8% vs expectations for 3.7%.
Although core CPI declined slightly in February, the three-month and six-month annualized rates both accelerated, to 4.3% and 3.9%, respectively, notes Jeff Hibbeler, director of portfolio management and senior portfolio manager at Exencial Wealth Advisors.
“Service inflation continues to drive price increases, while goods inflation posted its first positive reading since last spring,” Hibbeler adds. “Shelter inflation was somewhat softer than last month, which the market seems to be taking some solace in; however, discretionary categories such as airline fares, apparel, and used cars all accelerated in the month.”
Fed Chair Jerome Powell and the Federal Open Market Committee (FOMC) are looking for sustained evidence that inflation is whipped before they move to cut interest rates from a 23-year high. The latest CPI report likely changes their calculus, experts say, meaning it could be a while longer before we get monetary easing out of the next Fed meeting.