February CPI at 6% YoY as Tough Decision Lies Ahead for the Fed
The year-over-year inflation rate cooled down to 6% in February, while on a monthly basis, inflation increased by 0.4%. Core inflation, which disregards energy and food costs in its calculation, rose by 5.5% from last year and by 0.5% from January.
Core CPI Stood at 5.5% in February
The U.S. Bureau of Labor Statistics (BLS) released new consumer price index (CPI) data for February, which showed that the annual inflation rate eased to 6% last month. The data compares to January’s inflation rate of 6.4%, while economists were expecting 6%.
Month-over-month (MoM), inflation rose by 0.4%, equalling an estimated increase of 0.4%. The MoM change was lower than the previous increase of 0.5%.
Excluding food and energy prices, year-over-year (YoY) core inflation stood at 5.5% in February, compared to the consensus projection of 5.5% and the previous Core CPI of 5.6%. On a monthly basis, core CPI came in at 0.5%, while the economists expected a 0.4% increase.
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Fed Facing a Tough Decision Amid Banking Crisis
The latest CPI reading comes amid turmoil in the banking sector. Last week, the US regulators shut down Silicon Valley Bank (SBV) and seized the bank’s deposits, marking the largest US banking failure since the 2008 financial crisis. Two days later, the Federal Reserve and Treasury Department shut down the crypto-friendly Signature Bank, citing “systemic risk.” According to the regulators, depositors of both banks will get back all of their funds, adding no losses will be borne by the taxpayer.
The regulators stepped in after the SVB, one of the biggest banks serving early-stage businesses and venture capitalists, said it was under extreme duress, triggering a major bank run. As a result, numerous venture capital (VC) investors, including Peter Thiel’s Founders Fund, Coatue Management, and Union Square Ventures, instructed their portfolio businesses to withdraw cash from the SVB.
After delivering two 25 basis points (bps) rate increases in 2023, markets were pricing a good chance of a 50 bps hike at the upcoming Fed policy meeting next week due to the red-hot labor market and strong wage growth. But economists said the unexpected banking crisis could force the global central banks, including the Fed, to stop hiking interest rates as a growing number of signs of financial stress appears to be linked to rapid increases in borrowing costs over the past year.
What will likely be decided at the FOMC policy meeting on March 22? Let us know in the comments below.