For the Federal Reserve, which sets monetary policy, the February CPI may weaken its confidence in inflation approaching its 2-percent target, potentially leading to maintaining the target interest rate range at 5.25 percent to 5.5 percent for a longer period.
by Xiong Maoling, Xu Yuan
WASHINGTON, March 12 (Xinhua) -- U.S. consumer inflation in February sped up to 3.2 percent from a year ago, indicating continued inflation pressure, which could prompt the U.S. Federal Reserve (Fed) to maintain the federal funds rate at a high level for a longer period.
The latest data came after the Consumer Price Index (CPI) in January slowed to 3.1 percent from a year ago, the Labor Department's Bureau of Labor Statistics reported Tuesday.
The CPI increased 0.4 percent in February on a seasonally adjusted basis, after rising 0.3 percent in January.
The index for shelter rose in February, as did the index for gasoline. Combined, these two indexes contributed over 60 percent of the monthly increase in the index for all items, the report showed.
"Shelter is still by far the biggest factor in the CPI inflation," Dean Baker, a senior economist at the Center for Economic and Policy Research, told Xinhua.
Rent prices in February were 29.9 percent higher than they were before the COVID-19 pandemic, but rental growth seems to have slowed from the major spikes of 2021, according to the latest data from real estate website Zillow.
"Outside of shelter, other stories in the core (CPI) were mostly good," said Baker.
The latest inflation report showed that the so-called core CPI, which excludes food and energy, increased 0.4 percent in February, as it did in January, after edging up 0.3 percent in December.
Core CPI rose 3.8 percent over the last 12 months, down from 3.9 percent for the 12 months ending January.
Sarah House and Michael Pugliese, economists at Wells Fargo Securities, however, noted that core price growth was driven by "bigger than expected increases in volatile components such as used autos and airfares."
During the COVID-19 pandemic, inflation surged, and year-on-year CPI peaked at 9.1 percent in June 2022, the highest in four decades. Despite rate hikes by the U.S. Federal Reserve to cool inflation, the impact of higher prices continues to dismay Americans, which represents a persistent economic challenge for the Biden administration.
A January Gallup poll showed that 63 percent of U.S. adults think recent price increases have caused financial hardship for their family. This includes 17 percent who said it is a severe hardship affecting their ability to maintain their standard of living and 46 percent who reported it is a moderate hardship but does not jeopardize their standard of living.
For the Federal Reserve, which sets monetary policy, the February CPI may weaken its confidence in inflation approaching its 2-percent target, potentially leading to maintaining the target interest rate range at 5.25 percent to 5.5 percent for a longer period.
"Today's inflation data, which showed core consumer price inflation stuck at 3.8 percent, is bound to be interpreted by the Fed as every reason to delay starting the interest rate cutting cycle," Desmond Lachman, a senior fellow at the American Enterprise Institute, told Xinhua.
After all, the Fed has repeatedly said that it will only start cutting interest rates when it saw data showing that inflation was coming down on a sustainable basis to its 2-percent target, Lachman said.
The Chicago Mercantile Exchange Group's FedWatch Tool, which acts as a barometer for the market's expectation of the Fed funds target rate, showed Tuesday that the probability of the Fed maintaining rates in the March meeting was 99 percent.
Lachman, however, noted that one reason to think that the Fed will be mistaken in keeping interest rates high on the basis of backward-looking data is that this policy exacerbates the commercial real estate crisis that is now well underway.
"That could trigger another round of the regional bank crisis and tip the economy into recession," he said.
(Matthew Rusling also contributed to the article.)■
