U.S. core CPI in February was higher than expected for the second consecutive month, reinforcing the Federal Reserve's caution in cutting interest rates. While February's inflation data won't change the Fed's plan to keep interest rates steady next week, it will draw attention to whether officials' views on the prospects for rate cuts this year change.
Specific data shows that the U.S. CPI increased by 3.2% year-on-year in February, higher than the expected 3.1%, while the core CPI increased by 3.8% year-on-year, higher than the expected 3.7%. However, core CPI fell back from the previous value of 3.9%, still the lowest level since May 2021. In addition, core CPI increased by 0.4% month-on-month, the largest increase in eight months, higher than the 0.3% expected.
The data also showed that gasoline and housing contributed more than 60% to the monthly CPI increase, suggesting that inflation is somewhat sticky. Inflation in the service industry continued to remain high, with a year-on-year increase of 5.2%. Analysts believe that these data strengthened the determination of Fed officials to maintain current policies.
Officials had previously expected three rate cuts this year, but the data raised the risk that they would cancel one. However, market watchers remain uncertain about the prospects for future rate cuts.
Overall, the data suggest that inflation remains an important issue and that Fed officials need to remain vigilant in their decision-making. The market has different expectations on whether and how much the Federal Reserve will cut interest rates in the coming months.
