Inflation data cools in February, easing investor fears about the health of the US economy
February’s Consumer Price Index (CPI) report showed inflation pressures eased in February, calming some fears about the health of the US economy during a rocky few weeks for markets.
The latest data from the Bureau of Labor Statistics showed that the Consumer Price Index (CPI) increased 2.8% over the prior year in February, below January’s 3% annual gain and ahead of economist expectations of a 2.9% annual increase.
The index rose 0.2% over the previous month, a deceleration from the 0.5% increase in January and a beat compared to economists’ estimates of a 0.3% monthly uptick.
On a “core” basis, which strips out the more volatile costs of food and gas, prices in February climbed 0.2% over the prior month, lower than January’s 0.4% monthly gain, and 3.1% over last year — the lowest yearly increase in core CPI since April 2021.
This also marked a downtick from the 3.3% core price increases seen in the prior-month period and was ahead of Bloomberg consensus estimates.
It was the first time since July that both headline and core CPI showed a deceleration in price growth.
“Today’s inflation report brings some much needed relief for equity markets, averting immediate concerns around stagflation and giving the Fed space to cut policy rates in the coming months if economic data continue to deteriorate,” Seema Shah, chief global strategist at Principal Asset Management, said in response to the data.
“Certainly, with extraordinarily elevated policy uncertainty weighing on sentiment, retail companies beginning to sound warning bells around consumer spending, and recession concerns spiking, there is a strong likelihood that the Fed put will need to come into play relatively soon.”
Core inflation has remained stubbornly elevated due to sticky costs for shelter and services like insurance and medical care. But shelter did show further signs of easing in February, rising 4.2% on an annual basis, the smallest 12-month increase since December 2021.
On a month-over-month basis, the shelter index increased 0.3% compared to a 0.4% uptick in January. Similarly, the index for rent and owners’ equivalent rent (OER) each rose 0.3% over the prior month. Owners’ equivalent rent is the hypothetical rent a homeowner would pay for the same property.
“Housing inflation is historically the ‘stickiest’ component of inflation, meaning it takes longer to buck price trends,” Gargi Chaudhuri, chief investment and portfolio strategist at Blackrock, said in a note to clients. “The recent trend in housing prices keeps us optimistic on the future trajectory of inflation.”
