Inflation rose in February but was in line with expectations, likely keeping the Federal Reserve on track for another interest rate hike next week despite recent banking industry turmoil.
The consumer price index increased 0.4% for the month, putting the annual inflation rate at 6%, the Labor Department reported Tuesday. Both readings were exactly in line with Dow Jones estimates.
Excluding volatile food and energy prices, core CPI rose 0.5% in February and 5.5% on a 12-month basis. The monthly reading was slightly ahead of the 0.4% estimate, but the annual level was in line.
Stocks gained following the release, with the Dow Jones Industrial Average up more than 300 points in early trading. Treasury yields, which plummeted Monday amid fears over the banking industry’s health, rebounded solidly, pushing the policy-sensitive 2-year note up 30 basis points to 4.33%.
Heading into the release, markets had widely expected the Fed to approve another 0.25 percentage point increase to its benchmark federal funds rate. That probability rose following the CPI report, with traders now pricing in about an 85% chance that the Fed will hike the rate by a quarter point, according to a CME Group estimate.
“Even amid current banking scares, the Fed will still prioritize price stability over growth and likely hike rates by 0.25% at the upcoming meeting,” said Jeffrey Roach, chief U.S. economist at LPL Financial.
A decrease in energy costs helped keep the headline CPI reading in check. The sector fell 0.6% for the month, bringing the year-over-year increase down to 5.2%. A 7.9% decline in fuel oil prices was the biggest mover for energy.
Food prices rose 0.4% and 9.5%, respectively. Meat, poultry, fish and egg prices fell 0.1% for the month, the first time that index has retreated since December 2021. Eggs in particular tumbled 6.7%, though they were still up 55.4% from a year ago.
Shelter costs, which make up about one-third of the index’s weighting, jumped 0.8%, bringing the annual gain…
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