CPI report shows 6.0% inflation- what to expect from Fed?

YEREVAN (CoinChapter.com) – The US inflation has shrunk to 6.0% in January, standing 0.4% below January statistics, according to the latest Consumer Price index (CPI) report from the Bureau of Labor Statistics.

The data came after the Federal Reserve had somewhat reinstated its hawkish approach and planned to hike up interest rates in the year ahead. Here’s a short rerun of the report and its possible implications. 

Shelter Costs Lead US Inflation Up

The report specified that the index for shelter was “by far the largest contributor” to the monthly all-items increase, much like in January, accounting for 70% of it, . Food, gasoline, and natural gas indexes also contributed to the growing inflation. 

The food index increased 0.4% in February, and the food at home index rose 0.3% over the month. The energy index fell 0.6% in February after increasing 2.0% in January.

read the report.

Notably, the utility (piped) gas service led the pack with a 14.3% inflation but registered an 8% monthly decline, as seen in the chart above. Additionally, the used cars and trucks industry saw a decline in prices by 13.6%.

Also read: Will Binance win the stablecoin battle if USDC collapses? Let’s see.

Why is Feb CPI report significant?

February’s CPI report was the last significant data report on U.S. consumer prices before the Federal Reserve meets on March 21-22 to make its next interest-rate decision. Benson Suet, Business Development & Strategic Partnership at Coinstore.com, agreed, underscoring the importance of the upcoming inflation report.

For a risk-on market, inflation has to come down progressively. The market will be sensitive to the upcoming CPI report. If inflation is sticky at 6%, it means Fed has to hike higher interest rates to bring the inflation down.

he told CoinChapter.

The report showed that price growth continued to moderate last month, albeit slightly from January’s 6.4% level. That suggests the Fed’s effort to tame inflation with higher rates is working, but slowly.

Also read: US CPI Data May Have Another Bearish Surprise for Stocks and Crypto After SVB Collapse.

Fed Chair Powell has a hawkish approach.

On March 7-8, during his address to Congress, Fed Chair Jerome Powell commented on the higher-than-expected inflation data from January. He asserted that the “supply chain bottlenecks have eased, and energy prices declined,” somewhat cooling the inflation off. However, the “pressure remains high,”

That said, there’s little sign of inflation easing in the category of core services, excluding housing. A category that accounts for more than half of core consumer expenditures. To restore price stability we’ll have to see lower inflation in this sector, and there will very likely be some softening in the labor market conditions.

commented Powell.

He then proceeded to discuss the monetary policy that Fed will implement in its efforts to bring inflation down to the 2% goal. The lawmakers have a “long way to go, and it is likely to be bumpy,” said the Chair.

We continue to anticipate that ongoing increases in the target range for the federal funds rate will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.

continued the Fed Chair.

Markets expect more turmoil.

Prior to the report release, on a year-on-year (YoY) basis, inflation traders expected a 6% CPI rate. Core CPI readings are expected to reach 5.5% YoY. Furthermore, hawkish commentary by Fed chair Jerome Powell might have contributed to the skittish market sentiment.

Rising inflation and interest rates mean people would rein in their spending. As a result, the economy would cool down, and companies would struggle to profit. Additionally, despite the regulators’ efforts to offset the damage caused by the Silicon Valley Bank implosion, the crash and its implications might make investors wary of other cracks in the US financial system. 

In the wake of the US banking unease, Kevin Cummins, chief U.S. economist at NatWest Markets, commented he did not think the CPI report would be much of a “market mover.” He added that he no longer expected the Fed to raise interest rates in March, and he sees the rate hiking cycle at an end.

Also read: Apollo Global among potential buyers of Silicon Valley Bank shares as contagion spreads.

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