Rate cuts are even less likely after surprise rise in inflation – driven up by gas, car insurance and baby food, but there’s finally good news on food prices
- Annual inflation rose slightly to 3.2 percent in February from 3.2 percent
- The numbers remain well above the Federal Reserve’s 2 percent target
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Inflation rose slightly to 3.2 percent in February, pushed up in part by rising gas costs.
Figures released by the Bureau of Labor Statistics (BLS) on Tuesday showed that core prices, which exclude volatile goods such as food and energy, rose 0.4 percent between January and February.
Prices at the pump rose 4.3 percent month-on-month — though they remain 3.9 percent below where they were last year.
Annual inflation came in slightly above January’s 3.1 percent and much higher than the Federal Reserve’s target of 2 percent.
Inflation rose slightly to 3.2 percent in February as prices were pushed up by housing costs and gas
The inflation number plays a big role in whether the Federal Reserve will cut interest rates sooner rather than later. Pictured is its chairman Jerome Powell
But stocks rose slightly on Tuesday morning as investors cheered the cooling in some areas of inflation.
The Dow rose 97 points, or 0.3 percent, while the S&P 500 gained 0.5 percent and the Nasdaq Composite added 0.6 percent. It snapped the latter two out of a two-day losing streak.
The sharp rise in gas prices, along with the continued steady rise in shelter costs, were responsible for 60 percent of the monthly increase, the BLS said.
But in brighter news, many grocery prices remained relatively flat, with the price of food at home rising by 0.1 percent.
Fed Chairman Jerome Powell said last week that the Fed is ‘not far’ from gaining enough confidence in inflation to start cutting interest rates.
Cuts in the Fed’s key interest rate, which is at its highest level since 2001, will ease pressure on the economy and financial system, while lowering investment prices.
The general expectation among traders is that the Fed will begin cutting interest rates in June, and the prices of stocks have been lifted by these expectations as well as signals that the economy remains remarkably robust.
Mohit Kumar, chief economist and strategist for Europe at Jefferies, said “the market is in wait-and-see mode” for Tuesday’s inflation numbers. He added that he expects a first cut from the Fed in June, in line with the markets.
“An inline or weaker print would reinforce our view of the June cut and be welcomed by the markets,” he said.
Markets aren’t pricing in a Fed rate cut at next week’s meeting, but a more than 60 percent chance of one in June, the CME FedWatch Tool showed.