US core CPI tops estimates, pressure on Fed as it weighs hike

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(Bloomberg) — Underlying U.S. consumer prices rose the most in five months in February, forcing Federal Reserve officials to make a difficult choice as they weigh still-rapid inflation against banking turmoil in their next interest rate decision. It was lying

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The consumer price index, excluding food and energy, rose 0.5% last month and 5.5% from a year earlier, according to Tuesday’s data from the Bureau of Labor Statistics. Economists view the gauge — known as the core CPI — as a better indicator of underlying inflation than the headline measure.

The overall CPI climbed 0.4% in February — more than 70% of which was due to sheltering — and up 6% from a year earlier. The median estimate in a Bloomberg survey of economists called for a 0.4% monthly advance in the overall and core CPI measures.

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The data reaffirm that the Fed’s quest to tame inflation will be a bumpy one as the economy has proved largely resilient to a year’s worth of interest rate hikes so far. The challenge now for the Fed is how to prioritize still-high inflation with rising financial stability risks for the Silicon Valley bank to resolve.

Just before the crisis unfolded last week, Chair Jerome Powell left the door open to speeding up the pace of rate hikes again, but many economists now say the central bank will either stick with a smaller increase or increase the rate next week. Will stop completely after getting a week. , One shop even says that the rate may be cut.

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“We got into this mess because a lot of central banks and a lot of economists, the Fed started to believe that inflation is pretty much dead,” Ethan Harris, head of global research at Bank of America Corp., said on Bloomberg Television. ” “Now we’re seeing massive catch-up.”

Two-year Treasury yields, which are sensitive to Fed policy, edged higher in the session, while the S&P 500 opened higher and the dollar edged lower. Swap traders bet that the Fed will hike interest rates by 25 basis points at this month’s meeting.

Read more: Fed battle plan for inflation shattered by financial turmoil

Outside shelter, entertainment, household goods and airfare also contributed to monthly advances in the core measure. Grocery prices rose at the slowest monthly pace since May 2021, including the biggest drop in egg prices since the early months of the pandemic.

The deflation of goods that has driven the decline in overall inflation in recent months has lost steam. Except for food and energy, there was no change in goods prices in February. Used-car prices – a key driver of slow price growth in recent months – fell the most in nearly a year. Compared to the previous year, they registered a decline of 13.6%, the most since 1960.

Energy prices have declined due to a large drop in the prices of natural gas and fuel oil. Meanwhile, the cost of electricity increased.

Shelter costs, which are the largest services component and account for nearly a third of the total CPI index, rose 0.8% last month. Hotel stays have contributed to the surge, with the largest monthly advance amount since October.

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Rents in each of the equal rent categories for shelter and owners increased by a record annual amount of at least 8%.

Because of the way this is calculated, there is a delay between the real-time measures – which are currently showing a decrease in fares – and the CPI data.

According to Bloomberg calculations, prices for services, energy and housing, have risen by 0.5% since September. Powell and his colleagues stress the importance of looking at such a metric when assessing a country’s inflation trajectory, although they calculate it based on a different index.

What Bloomberg Economics Says…

“February’s CPI report shows that inflation is not disappearing quickly, and the need to compel the Fed to raise rates remains. A 25-bp move at the March FOMC meeting would be appropriate, followed by some And will be until the Fed reaches a terminal rate of 5.25%.

– Anna Wong and Stuart Paul, economists

To read the full note, click here

The Fed is also keen on the wage hike and how it could stoke inflation. A separate report on Tuesday showed real average hourly earnings fell 0.1% in February from a month earlier, and were down 1.3% from a year earlier. The annual measure has been negative every month for almost two years.

Tuesday’s report is one of the Fed’s last major releases before its March 21-22 meeting. Policymakers will examine Wednesday’s inflation and sales data as well as other data on housing, manufacturing and consumer inflation expectations.

— With assistance from Reade Pickert, Chris Middleton, Liz Capo McCormick and Mackenzie Hawkins.

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(Updated with Market Open)

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