(Reuters) - U.S. consumer prices cooled in February amid a decline in gasoline prices and a moderation in the cost of rental accommodation, the latest indication that an anticipated pickup in inflation probably will be only gradual.
The Labor Department said its Consumer Price Index rose 0.2 percent last month, in line with consensus forecasts, after jumping 0.5 percent in January. In the 12 months through February, the CPI rose 2.2 percent, also as expected and up from 2.1 percent in January, as the weak reading from last year dropped from the calculation.
** U.S. February CPI rose 0.2 pct, in line with consensus 0.2 pct rise expected; without food & energy it rose 0.2 pct, also as expected
** U.S. Feb CPI year-over-year up 2.2 pct (consensus +2.2 percent), ex-food & energy up 1.8 pct (consensus +1.8 pct)
** Feb CPI energy +0.1 pct, gasoline -0.9 pct, new vehicles -0.5 pct
** Feb CPI food unchanged, housing +0.3 pct, owners’ equivalent rent of primary residence +0.2 pct
MICHAEL O’ROURKE, CHIEF MARKET STRATEGIST, JONESTRADING, GREENWICH, CONNECTICUT
“The number was in line with expectations. Initially the stock market rallied and the Treasury market rallied. It’s an in-line number. I’m not sure why there’s equity market enthusiasm.”
AARON KOHLI, INTEREST RATE STRATEGIST, BMO CAPITAL MARKETS, NEW YORK
“It was a little bit weaker than consensus, not much so. A lot of that weakness actually came from some of the categories that had been very strong in the past, vehicle prices, medical care commodities, education, communication. There were some areas of outsized strength as well, motor vehicle insurance remained fairly strong but you had a continued bounce in apparel prices, which already last month were one of the strongest in 30 years.
“I think this is another very strong print for apparel, which essentially rescued core. All in all looking like its closer to a miss, not necessarily an outright one. It certainly presents some more difficult questions for the central bank if they look to embark on a more aggressive hiking cycle next week, what’s the end point for them? How do they expect to get inflation materially higher if they are already starting to see some signs of spotty weakness.”
“We’ve had two great reports a week apart. Fabulous. We are in the sweetest of the sweet spots you can get and by my calculations when you look at models of the Phillips curve… you are in the most desirable place of employment and inflation that we have seen in the last 50-60 years. This is a combination which has the capacity to exist for several years before it begins to change in any dramatic way and we are in the middle of that several year period. It’s the sweetest spot for market agents, economic growth, stock prices and it can persist for quite some time. It takes an external shock of some type to derail or disturb this situation and it does not appear that one is in the offing.”
SAM BULLARD, SENIOR ECONOMIST, WELLS FARGO SECURITIES, CHARLOTTE, NORTH CAROLINA
“That acceleration was what we have seen up to this report. There is firmness in the consumer price data but there is not that acceleration at least with the headline number. We did some acceleration in the core prices. Given this the major consumer number before the next FOMC meeting and economic projections, we are seeing some Fed officials have expressed some confidence that inflation would reach their 2 percent target in the medium term. This report with the core inflation’s three-month annualized rate (at 3.1 percent) should bolster that case. There remains upward pressure on core inflation at the moment. In a few more months, we should hit those transitory factors that provide more tailwind for higher inflation. This Feb CPI number supports recent comments from some Fed officials about inflation reaching its target. Rate hikes in March and June seem likely. “
“It’s much to do about nothing. It’s accelerating but it’s not accelerating fast. Apparels are rising so that’s not a surprise, but the owners’ equivalent rent is weaker than expected. Going forward, the headline CPI would be running at about 3 percent and the core rate would be at about 2.5 percent. It’s not out of control but it’s grinding higher. We have been looking at four tightening this year, three in 2019 and one in 2020. The Fed wants to get to a neutral rate.”
STOCKS: S&P futures slightly extended slight overnight gains right after the data and were up 0.36 percent.
BONDS: U.S. longer-dated Treasury yields rose slightly right after the data, then settled back down to 2.8462 percent.
FOREX: The U.S. dollar was hovering around unchanged, turning down 0.12 percent from a slight gain before the data. (This version of the story was refiled to add dropped words in Shipley and Bullard comments)