US consumer prices ticked up by 0.4% from January to February, outpacing the previous month’s 0.3% increase.
The jump caused the annual rate to rise to 3.2%, with core prices, excluding food and energy, also increasing by 0.4%. In March, US Federal Reserve Chair Jerome Powell said rates would not be cut until there was “greater confidence” inflation was moving “sustainably” towards its 2% goal.
As the industry looks towards rate cuts, experts such as Principal Asset Management’s Seema Shah believe the sticky inflation numbers could push rate cuts to June.
See also: European Central Bank maintains rates amid inflation decline
“Today’s inflation print is hawkish on the surface, but the details are slightly more reassuring. While core services inflation was again hot, the all-important core services ex housing weakened from last month while shelter inflation nudged lower,” Shah said.
“The disinflationary trend is petering out, but inflation is not resurging. And with the broader set of labour market data and surveys suggesting that the economy is cooling, albeit painfully slowly, price pressures should also subside very gradually. This print is just about enough to keep rate cut expectations for June stable – but another print like this next month would push the first cut into the second half of the year, putting the soft landing narrative in question.”
Harry Richards, fixed income portfolio manager at Jupiter Asset Management, joined Shah in marking shelter as a positive sign despite the overall increase. Shelter rose 0.4% in February, as opposed to 0.6% in January.
“While the data out of the US today beat market expectations, we see the shelter component of core CPI waning, as the year progresses,” Richards said.
“This will prove a key driver in allowing the Fed to justify easing policy towards a neutral level, from the current highly restrictive state. We are closely monitoring labour market developments to ascertain whether the cutting cycle may have to be more aggressive than is currently priced.”
Mark Sherlock, head of US equities at Federated Hermes, also voiced doubts of a rate cut before June.
“With CPI coming in moderately ahead of expectations, there is little catalyst for the Fed to cut rates ahead of June as it waits for corroborative evidence that the disinflation story remains on track. This chimes with our own view that rates – whilst on a declining path – will remain elevated for longer than many expect,” Sherlock said.
Preston Caldwell, chief US economist at Morningstar, added: “Today’s report should worry inflation optimists more than last month’s CPI report. Although shelter inflation dropped in February compared to January, inflation increased in core goods and other services.
“However, we doubt that the uptick in core goods inflation will persist. The increase in used car prices in February was not matched by an increase in wholesale prices, which are still trending down. More broadly, supply chain conditions remain vastly improved compared to their disrupted state circa 2021/22. That should continue to exert downward pressure on core goods.”
