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CPI Inflation Report February 2024:

Consumer prices increased by 0.4% in February and by 3.2% year-on-year

Inflation rose again in February, allowing the Federal Reserve to wait at least until summer before starting to lower interest rates.

The consumer price index, a broad measure of the costs of goods and services, rose 0.4% for the month and 3.2% from a year ago, according to the Labor Department. The Bureau of Labor Statistics reported Tuesday. The monthly gain was in line with expectations, but the annual rate was slightly higher than the 3.1% forecast by the Dow Jones consensus.

Excluding volatility in food and energy prices, the underlying CPI increased by 0.4% over the month and 3.8% over the year. Both were a tenth of a percentage point higher than expected.

Although the 12-month pace is below the inflation peak of mid-2022, it remains well above the Fed's 2% target as the central bank approaches its two-day policy meeting in a week.

A 2.3% increase in energy costs helped boost the overall inflation figure. Food costs remained stable over the month, while housing costs rose another 0.4%.

The BLS reported that energy and housing increases accounted for more than 60 percent of the total gain. Gasoline jumped 3.8% for the month while owner's equivalent rent, a hypothetical measure of what homeowners could get by renting out their property, rose 0.4%.

“Inflation continues to exceed 3% and, once again, housing costs have been the main culprit. While house prices are expected to rise this year and rents are falling only slowly, the decline as much expected housing prices won't come to the rescue any time soon,” said Robert Frick, a business economist at Navy Federal Credit Union. “Reports like those from January and February are not going to prompt the Fed to cut rates quickly.”

Fresh chicken breasts are displayed for sale in the meat area of ​​a Sprouts Farmers Market grocery store in Redondo Beach, California, February 23, 2024.

Patrick T. Fallon | AFP | Getty Images

Airfares were up 3.6%, clothing prices were up 0.6% and used vehicles were up 0.5%. Medical care services, which contributed to a higher-than-expected CPI rise in January, fell 0.1% last month.

The year-on-year increase in headline CPI was 0.1 percentage points higher than in January, while the core one was a tenth of a point lower.

Wall Street opened up following reportmajor stock averages as well as positive Treasury yields early in the session.

Although the 12-month pace is below the inflation peak of mid-2022, it remains well above the Fed's 2% target as the central bank approaches its two-day policy meeting in a week.

In recent weeks, Fed officials have both signaled that rate cuts are likely at some point this year and expressed caution about letting up on the fight against rising prices too soon. The statement released after the January meeting said policymakers needed “greater confidence” that inflation would return to its target.

Chairman Jerome Powell, during his testimony to Congress last week, echoed these concerns, although he mentioned that the Fed was probably “not far away” from the point where it could begin to ease monetary policy .

Tuesday's report “leaves Fed officials far short of the 'greater confidence' needed to begin cutting interest rates,” said Paul Ashworth, chief North America economist at Capital Economics .

For financial markets, the Fed's shift in stance from its apparent policy shift at the end of 2023 has led to a reassessment of the pace of rate cuts. While futures traders began the year expecting cuts starting in March, with six or seven cuts total for the year, they pushed the first cut back to June, with two or three to follow, assuming reductions in quarter-percentage-point increments.

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A buoyant economy helped the Fed focus on incoming data and allowed policymakers to avoid having to rush to cut rates. Gross domestic product grew at an annualized rate of 2.5% in 2023 and is on track to increase at a pace of 2.5% in the first quarter of 2024, according to the Atlanta Fed's GDPNow tracker.

A key driver of this growth has been consumer resilience, driven by a strong job market. The economy added 275,000 more non-farm jobs in February, although the increase was heavily concentrated in part-time positions and the unemployment rate reached 3.9%.

Such strength can be a double-edged sword: while growth in the face of aggressive rate hikes has bought the Fed time on policy, it has also raised fears that inflation may be more sustainable than expected.

Housing costs in particular have raised concerns.

Housing accounts for about a third of the CPI's weighting and has been slow to decelerate, at least by the BLS measure. Fed officials expect rental prices to decline throughout the year, and other measures outside of the CPI calculation of landlord-equivalent rent have shown an easing of price pressures.

Correction: The BLS reported that energy and housing increases accounted for more than 60% of the total gain. An earlier version incorrectly indicated a sector.

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