February CPI print showed an easing of price rises compared to January's spike
Trade wars often come back to bite the country that starts them, and for millions of American consumers and businesses, the threats are real. But at least a key inflation measure has eased, for now.
The latest US Consumer Price Index reading posted a 0.2% rise in consumer prices for February, a far slower pace than the 0.5% increase in January (seasonally adjusted) and was up 2.8% over the previous 12 months (not seasonally adjusted). Core inflation was up 3.1% on an annual basis. These stats were below expectations.
Airline fares (-4.0%) and gasoline (-1.0%) helped offset a 0.3% rise in shelter costs, but food prices continued higher, rising 0.2% for the month and up 2.6% over the past year, the Bureau of Labor Statistics data shows.
But the relief from faster rising prices may be short lived with the impact of tariffs certain to mean higher costs for consumers.
“A lot of this inflation data does not incorporate what is to come and what already has happened for tariffs,” said Kevin Gordon, senior investment strategist at Charles Schwab told CNBC. “The vagaries and uncertainties associated with policy are still a much stronger force in the market than anything CPI-related or in terms of one data point.”
The easing of inflation, at least for now, along with talks of recession for the US economy, is increasing speculation that the Fed may resume rate cuts at its FOMC meeting next week.
“While the Fed is still likely to remain on hold at this month’s meeting, the combination of easing inflationary pressures and rising downside risks to growth suggest that the Fed is moving closer to continuing its easing cycle,” said Kay Haigh, global co-head of fixed income and liquidity solutions at Goldman Sachs Asset Management.
However, RBC Economics’ Claire Fan and team do not expect the US central bank to follow the Bank of Canada’s rate cut this month, or any time this year.
“The Fed judged the US economy to be in “a good place” in January. In the latest speech in March and after recent disruptions to trade policy and government spending, Fed chair Jerome Powell maintained that assessment and again emphasized the need (and room) for patience. Without additional progress on inflation, and/or a worse turnout in the labour market, we think the Fed will hold rates through 2025,” her latest commentary stated.
Gargi Chaudhuri, chief investment and portfolio strategist, Americas, at BlackRock, agrees that there won’t be a Fed cut this month, but thinks there are cuts to come.
“Officials at the Federal Reserve have recently urged caution in adjusting policy too quickly and are not in a rush to drop interest rates,” he said. “The Fed remains committed to their “hold steady” policy stance, as they wait to examine the potential effects of new policies on growth, inflation, and the labor market. We expect that the FOMC will remain on hold in their meeting next week and suggest that they will cut rates only 2 times in 2025.”
