The Consumer Price Index for All Urban Consumers (CPI-U) increased by 0.4% on a seasonally adjusted basis, per the Bureau of Labor Statistics. Year-over-year, before seasonal adjustment the all items index grew by 6.0%, which is down from 6.4% in January.
According to CNBC, the biggest culprits driving inflation this month were eggs (+55.4%), butter and margarine (26.9%), and airfare (26.5%). The greatest counterweights were televisions (-14.8%) and used cars and trucks (-13.6%), which both cooled down considerably.
February’s CPI data continues a general deceleration of inflation that has been ongoing for several months, and which represents a considerable cooling off from the pandemic-era peak of 9.1% in June 2022. Prior forecasts pegged February’s seasonally adjusted CPI to come in at 6.0%, which turned out to be exactly on the money. However, core CPI came in a little hotter than expected, by precisely one-tenth of one percent at 0.4% (5.5% year-on-year).
Source: U.S. Bureau of Labor Statistics
Food
In February, the food index rose by +0.4% while the food at home index rose at a slightly lesser pace of +0.3%. Compared to January, five out of six food categories increased, including nonalcoholic beverages and dairy and related products.
On the other hand, certain food categories fell, including poultry, fish, and eggs, which decreased (-0.1%) in February, which constitutes the first decrease in this food category in 14 months (December 2021).
Energy
When it comes to energy prices, the energy index fell (-0.6%) in February, following a fairly large 2.0 percent increase in January. Bringing the CPI-U down was the natural gas index, which dropped by the largest margin since 2006 (-8.0%).
Over the past 12-month period, the energy index hiked +5.2%, whereas the fuel oil index rose +9.2% in the same period alongside electricity at +12.9% and natural gas at +14.3%.
Gasoline costs fell (-2.0%) in February, providing much-needed price relief at the pump for American consumers.
Source: U.S. Bureau of Labor Statistics
All Items Less Food and Energy (February 2023 Core CPI)
February 2023’s core CPI came in at 0.5%, which represents a slight increase over many market watchers’ expectations of 0.4% and constituting a rise from 0.4% in January. Driving up the core CPI was the shelter index, which rose 0.8% and the index for rent which went up 0.8% as well. Lodging away from home rose by 2.3% in February.
Within the core CPI, the shelter index was the greatest driver of the index’ larger-than-anticipated outcome in February. Additional upward pressures were asserted by prices for motor vehicle insurance by +14.5% and household furnishings at +6.1%. However, numerous areas within the core index fell, including the medical care index (-0.5%) and the index for physicians’ services (-0.5%).
Inflation Matches Expectations in February: Interest Rate Relief to Come?
Given that February’s CPI report matched analysts’ expectations, we may see Federal Reserve Chairman Jerome Powell announce a temporary off-ramp of the central bank’s quantitative tightening policy. As speculated on CNBC Television on Tuesday, the current crisis at Silicon Valley Bank, with the threat of a contagion spilling over into over sectors of the U.S. and global economy, it may be in the Fed’s best interest to pause rate hikes following the next Federal Open Market Committee meeting on March 21 and 22.
In short, February’s report indicates that the Fed’s hawkish interest rate policy, which has seen multiple .25 and .50 basis point hikes as of late, has been largely successful in restraining inflation. This month’s CPI came in exactly where experts predicted they would, with the slight exception of the core CPI which was only a bit hotter than anticipated. Given the ongoing systemic problems in the lending market, we may, however, see the Fed’s interest rate policy relaxed through the spring, which may temporarily give rise to a new rebound period in the inflation rate.
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Source Cited: https://www.bls.gov/news.release/cpi.nr0.htm
Liam Hunt, M.A., is a writer specializing in finance and international affairs. His articles have appeared in the Toronto Star, Ottawa Citizen, and Vancouver Sun, and his expert commentary has been featured in Forbes, Bloomerg, Barron's, and the New York Post.
