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U.S. consumer prices increase in line with expectations, core weaker than expected

Published 10/03/2021, 13:53
Updated 10/03/2021, 13:54
© Reuters.

© Reuters.

By Samuel Indyk

Investing.com – US consumer prices increased 0.4% month-over-month in February, in {{0|{{0|line} }} } with market expectations. On an annual basis, CPI rose 1.7%, the largest increase in prices since February last year.

Core CPI, which strips out volatile food and energy prices, increased 0.1% month-over-month, leading to a 1.3% annual increase, below the expected 1.4%.

Markets have been fearful of high inflation with the recent tech sell-off occurring as markets fear the Federal Reserve is falling behind the curve and may have to begin tapering their asset purchase programme sooner than is currently being communicated.

A sharp increase in inflation this month could have set the bulls rushing to the exits but, as it happens, inflation was broadly in {{0|line} } with expectations.

In immediate reaction, US stock futures jumped as fears of an immediate spike in inflation subside for now. The United States 10-Year yield dropped back to 1.55% and the US Dollar Index fell to session lows.

Inflation on the horizon?

Although today's inflation figures were in line with expectations and the core measures slightly softer, an increase in inflation appears to be on the horizon.

"Headline inflation is set to hit 3% in April as prices in a vibrant, reopened, supply constrained economy contrast starkly with those of 12 months before when the situation looked dire," said analysts at ING in an emailed research note. "Add in rising commodity, energy prices and freight costs that are still working their way through into CPI we expect to see inflation rise above 3.5% in May and June, possibly briefly touching 4%."

How the Federal Reserve describes these figures will be important going forward. Powell recently said he expects high inflations readings to be transitory, suggesting the Fed will look through the high expected readings in the coming months and maintain their accommodative monetary policy stance.  

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