Inflation, Still Sky-High, Slightly Cools As Fed Weighs More Rate Hikes

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Prices grew 0.4% on a monthly basis in February, falling slightly from January, the Bureau of Labor Statistics (BLS) reported Tuesday, as economists questioned the impact of the report on the Federal Reserve’s upcoming decision to raise interest rates.

On an annual basis, prices climbed 6%, driven primarily by a spike in shelter, which was up 8.1% year-over-year, according to the BLS. The number matched economists’ expectations, and comes at a crucial time for the Federal Reserve, which has been aggressively hiking interest rates in a bid to slow economic activity and reduce stubbornly high inflation, according to CNBC.

The Federal Reserve was widely expected to hike interest points by at least a quarter of a percentage point at its March 21-22 meeting, with some economists anticipating a half a percentage point hike if Tuesday’s inflation report came in above expectations, CNBC reported. However, the collapse of Silicon Valley Bank, the second largest bank failure in U.S. history, has prompted some economists to question whether the Fed will hike rates at all.

US CPI YoY%, Real-Time Proxy Roundup — There is a very strong concentration around 6.0%:@ClevelandFed Nowcast: 6.2%@TheTerminal Consensus Forecast: 6.0%@Kalshi Median: 6.0%@TheTerminal Inflation Swap Implied: 6.0%@economics Nowcast: 6.0% pic.twitter.com/XzDJaA2HJJ

— Michael McDonough (@M_McDonough) March 14, 2023

“We’ve always said the one thing that could derail the Fed’s tightening would be a financial crisis,” Diane Swonk, chief economist at KPMG, told the WSJ. “It’s not clear whether a crisis has been averted yet.”

Kevin Cummins, chief U.S. economist at NatWest Markets, told CNBC that he believes the Fed will likely end its series of rate hikes in March, and that an upcoming recession in the second half of 2023 will help cool inflation. Tom Simmons, economist at Jeffries, thinks the Fed is likely to “stay the course” and hike rates by a quarter percentage point in March, since the Fed still has “more work to do” to combat inflation, according to CNBC.

“It would have to be a lot softer to take the hike out,” Simmons told the outlet. “By stopping here, it exposes them to risk of inflation expectations reaccelerating”

Food prices increased 9.5% in February on an annual basis, with the price of food at home up 10.2%, decelerating from 10.1% in January, the BLS reported. The cost of energy was up 5.2%, with the cost of electricity up 12.9%, with the overall index down from January’s 8.7%.

So-called core-prices, which discount the more volatile food and energy sectors, grew by 0.5% monthly and 5.5% annually.

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