Consumer Price Index increases 3 2% in February vs. 3.1% expected

There’s also the very real fear that rising rates could cause the economy to fall into a recession. However, the question remains as to when and if inflation will return to the Fed’s 2% target, and when the Fed may consider inflation sufficiently close to target levels that it is willing to ease back on interest rates. For now, the Fed appears set to hold rates at high levels for the remainder of 2023, based in part on the belief that inflation will remain stubbornly high. Though the bond markets aren’t convinced that the Fed will stay the course.

Gold trades deep in negative territory below $2,170 on Friday as the persistent USD strength doesn’t allow XAU/USD to benefit from declining bond yields. The pair still looks to post small weekly gains after having pulled away from the record high it set above $2,220 on Wednesday. The monthly CPI and the Core CPI are seen increasing 0.4% and 0.3%, respectively.

This means the cost of a basket of goods and services in the U.S. increased by an average of 3.2% from February 2023 to February 2024. This was higher than January’s figure before adjustment, which came in at 3.1%. “The index for shelter rose in February, as did the index for gasoline. Combined, these two indexes contributed over sixty percent of the monthly increase in the index for all items,” the BLS noted in its press release. If month-on-month inflation remains strong, then that will encourage the Fed to consider a 0.25-percentage-point hike when it meets in May.

The official inflation rate is the calculation of changes in the CPI over a period of time. The CPI also includes substitution bias, which means it can overstate how much the cost of living has changed. For example, if the CPI captures a large increase in the price of an item, it doesn’t take into account people substituting that item for a cheaper one. Not taking this into account wrongly assumes that people continue to buy the more expensive item and experience a higher inflation rate than what they’re actually enduring. The U.S. Bureau of Labor Statistics (BLS) releases a monthly CPI report that includes statistics about how the prices of different goods and services change over the last month and the last 12-month period. Markets are currently pricing in a nearly 75% probability that the Fed will lower the policy rate in June, according to the CME FedWatch Tool.

Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%. Inflation in the United States (US) is forecast to rise at an annual pace of 3.1% in February, matching the increase recorded in January. The Core CPI inflation rate, which excludes volatile food and energy prices, is forecast to tick down to 3.7% from 3.9% in the same period. Inflation in the US, as measured by the change in the Consumer Price Index (CPI), rose to 3.2% on a yearly basis in February from 3.1% in January, the US Bureau of Labor Statistics (BLS) reported on Tuesday.

  1. Download our spreadsheet to see all the inflation expectations model’s outputs going back to 1982.
  2. That would disappoint the Fed, as it would hold annual inflation at over 5%.
  3. Other economic reports last week could also affect the Fed’s outlook Wednesday.
  4. The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
  5. The monthly CPI and the Core CPI are seen increasing 0.4% and 0.3%, respectively.
  6. That would likely only occur if inflation came in well above expectations.

But the cost of services — especially rent, car insurance, auto repairs and medical care — is likely to keep marching higher, Barclays says. That’s at least partly because of rapidly rising wages rooted in COVID-induced labor shortages. Rising gasoline prices likely put a floor under inflation in February, potentially reinforcing the Federal Reserve’s decision to take a go-slow approach with interest rate reductions. CPI is calculated by tracking the change in the prices of a fixed basket of goods and services. The $100 you just spent at the grocery store bought 4% less than it did one year ago. The consumer price index (CPI) helps answer this question, as it measures inflation, the economic phenomenon that slowly erodes the purchasing power of your hard-earned dollars.

That may encourage the Fed to be less aggressive with rates in the face of other economic risks beyond inflation. Industry data strongly suggests home pricing will ultimately cool, but we haven’t seen that in the CPI data yet due to statistical lags in how shelter costs are calculated. When and if shelter costs turn, that may be sufficient to bring inflation much closer to the Federal Reserve’s 2% goal. Currently markets expect the Fed to hold rates steady at that June meeting with a small chance the Fed elects to make another small hike in interest rates. That would likely only occur if inflation came in well above expectations.

What Is the Latest CPI Inflation Reading?

When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. Nowcasts suggest the CPI numbers may show an improving outlook, with estimated inflation running at a little over a 5% annual rate and an estimated month-on-month top four damaging consequences of data leakage rise in prices of 0.3%. However, core inflation may be more of a concern running at an estimated 0.45% month-on-month once food and energy are stripped out. That’s because energy costs are expected to have generally fallen in the March report, helping bring inflation down in the headline numbers. Inflation measures the rise in the price of a representative basket of goods and services.

Indicators and Data

Inflation nowcasts from the Cleveland Fed suggest a 0.5% month-on-month increase in core CPI for April, perhaps driven in part by rising energy costs during the month. That would disappoint the Fed, as it would hold annual inflation at over 5%. One reason that core inflation may have edged higher in November is that hotel rates were likely flat after declining four of the past five months, Barclays says. To help corral soaring prices, the Fed has lifted its key interest rate from near zero early last year to a 22-year high of 5.25% to 5.5%. But Fed officials have put hikes on hold since July, and with inflation and the job market both cooling, most economists think the central bank is done raising rates.

Is inflation expected to go down?

XRP price trades above the key $0.60 psychological level on Friday, holding on its recent gains as the Securities and Exchange Commission (SEC) is expected to file its remedies-related opening brief in the Ripple lawsuit. On the other hand, a monthly Core CPI print at or below the market consensus of 0.3% could reaffirm June as the month of the policy pivot. The market positioning, however, suggests that the USD doesn’t have a lot of room left on the downside. The 10-year expected inflation estimate that we report is the rate that inflation is expected to average over the next 10 years. While increases in gas prices can play an outsize role in monthly fluctuations for the survey, the outlook for gas price increases was actually relatively benign. Trends will also be noted in the CPI report about how the most recent findings compare over time, for both individual indexes and the overall inflation rate.

This measure offers a more stable reading on inflation because it strips out food and energy prices from the calculation. Prices of these goods tend to see sizable and unpredictable changes month to month that have little to do with consumer demand. Economic risks are surfacing that may force the Fed to make more of a trade-off between inflation and economic growth over the coming months. The Fed has voiced its desire to continue the inflation fight as long as needed, but markets believe the Fed will be be forced to cut interest rates far earlier than current Fed projections imply. Either way, inflation data for March is likely to show that inflation remains a concern. The key thing to look at within the CPI data will be shelter costs, basically the CPI’s term for housing costs.

The CPI report includes a number of tables that break down how various goods and services increased over the past month, as well as the past 12 months. Everyday items, such as meat, vegetables, cleaning supplies and even clothing are tracked. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote). The BLS is committed to providing data promptly and according to established schedules.

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