U.S. CPI falls to 6.0% in February, as expected, but core prices still strong

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By Geoffrey Smith

Investing.com -- U.S. headline inflation slowed again last month but core prices continued to rise at an uncomfortably fast pace, as housing rents continued their sharp rise.

The Bureau of Labor Statistics said the consumer price index rose by 0.4% in February, a slowdown from 0.5% in January. The annual rate of inflation fell to 6.0% from 6.4% and is now down by one-third from its peak of over 9% in June last year.

Even so, it remains at three times the Federal Reserve's targeted rate of 2% and gives the central bank little extra leeway in its battle to tame inflation.

However, the headline rate was flattered by a fall in energy prices, and by ongoing deflation in the used car market, where prices fell by another 2.8% as the supply chain disruptions of the pandemic faded into the rearview mirror.

Stripped of volatile components, core prices rose by a chunky 0.5%, an acceleration from 0.4% last month. The annual core rate consequently slowed much less than the headline rate, falling to 5.5% from 5.6% in February.

The cost of shelter rose by another 0.8% and accounted for over 70% of the total rise in prices. Food also continues to be a headache for consumers and the central bank. The price of food at home rose a relatively modest 0.3% but was up 10.2% from a year earlier, while the cost of eating out rose by 0.6% and was up 8.4%.

"Another hot core CPI print," tweeted Mike Konczal, director of macroeconomic research at the Roosevelt Institute, noting that the core price index is only moving sideways, rather than coming down as the Fed would like.

Financial markets nonetheless reacted positively to the news, which at least failed to generate anything like the shock that January's overshoot had done. By 07:45 ET (12:45 GMT), S&P 500 Futures were up 0.8%, while Dow Jones Futures were up 196 points, or 0.6%. The dollar index, meanwhile, trimmed its earlier gains to hit an intraday low of 103.09 before bouncing a little to trade at 103.23, up 0.1% on the day.

"The disinflationary road will be bumpy, but we're still on it," said Greg Daco, chief economist with EY.

Investors appeared to take the print as being mild enough to remove any desire for a 50 basis point rate hike at its policy meeting next week, against the backdrop of banking failures on the West Coast that suggest its previous rate hikes have finally fed through to the banking system. Goldman Sachs analysts said at the weekend that they expect the Fed to leave rates unchanged at the coming meeting, rather than aggravate concerns about financial stability.