Economists Dissect ‘Ugly’ Inflation Report
1 hr 40 min ago
Economists are digging into the Bureau of Labor Statistics’ report on inflation in February, which was a mixed bag with little to celebrate for anyone hoping to see consumer price increases decelerate.
Here’s what experts are saying:
“Unfortunately, the details of the report looked just as ugly as the headline,” Scott Anderson, Ph.D., Chief U.S. economist at BMO Capital Markets, said in a commentary.
Not only did the year-over-year inflation rate rise to 3.2% from 3.1% in January because of rising rent and gas prices, but a few prices that had been falling in recent months reversed direction and rose, including for apparel and commodities.
Stubbornly high inflation makes it less likely that officials at the Federal Reserve will cut the central bank’s benchmark interest rate anytime soon, Anderson said.
“Inflation remains the number one problem they still have yet to solve,” he wrote. “Clearly, restrictive monetary policy has not yet fully done its work and a patient and slightly hawkish Fed must remain in place for the monetary medicine to fully take effect.”
Others noted that because most of the inflation in February came from housing, particularly a measure called “owners equivalent rent,” they still expect overall inflation to cool down in the coming months. That’s because rent increases have been slowing recently, and that data can take up to a year to make it into official inflation measures like the Consumer Price Index. The crucial OER measure rose 0.4% in February from January, less than the 0.6% monthly increase the previous month.
“Owners Equivalent Rent (OER) has begun to tick lower, and given its heavy weighting in the CPI, a continued downward trajectory by June or July could certainly assuage Fed concerns regarding inflation remaining stubbornly higher,” Quincy Krosby, Chief Global Strategist for LPL Financial, wrote in a commentary.
Several commentators said while the Fed remains likely to cut the fed funds rate in June, the chances diminished for a rate cut at the central bank policy committee’s meeting in May.
“While the Fed appears inclined to cut rates the data isn’t there to justify it,” James Knightley, chief international economist at ING, wrote in a commentary. “We think it will be by June, but a May rate cut is a very remote possibility now.”
The spike in gas and heating fuel prices was also worrisome even though the Fed mainly considers “core” inflation rates that exclude energy prices when setting monetary policy, Gus Faucher, chief economist at PNC, wrote in a commentary with other economists at the bank.
“Though not part of the core CPI metric that aligns with the Federal Reserve’s inflation-targeting mandate, energy prices are nonetheless influential on the health of household balance sheets—especially as more workers have resumed a regular commute for in-office work,” Faucher wrote. “Higher energy prices remain inescapable both at home and on the road.”
There were some silver linings in the report, including that food prices stayed flat on a monthly basis, suggesting that inflation is still on a downward trajectory despite some bumps in the road.
“While a downward trend in inflation remains in place in our view, the slow progress seen over the past few months is likely to keep the Fed searching for a bit more confidence that inflation is on a sustained path back to its 2% target,” Sarah House and Michael Pugliese, economists at Wells Fargo Securities, wrote in a commentary.
Small Business Optimism Hits Lowest Level Since May
3 hr 55 min ago
Small business owners were more pessimistic in February, as their outlook for near-term business conditions remained near 50-year lows and inflation remained a top problem.
The National Federation of Independent Business (NFIB) monthly Small Business Optimism Index fell to 89.4 in February, the lowest reading for the survey of business owners since May. It also marked the 26th straight month below the 50-year average.
The number of owners raising prices was at the lowest point since January 2021, but more than in the prior month said inflation was their most pressing problem. Additionally, more owners expect their sales to move higher, rebounding from January’s fall.
“While inflation pressures have eased since peaking in 2021, small business owners are still managing the elevated costs of higher prices and interest rates,” said NFIB Chief Economist Bill Dunkelberg in a prepared statement.
While labor cost troubles remain at near 50-year highs in the survey, February showed some improvement in the labor market, with fewer business owners reporting labor quality as its biggest problem.
“The labor market has also eased slightly as small business owners are having an easier time attracting and retaining employees,” Dunkelberg said.
-Terry Lane
This blog post has been updated to clarify when it was last this low.
February Inflation Hotter Than Economists Predicted—Again
4 hr 23 min ago
Inflation was stickier than expected for a second month in a row.
The Consumer Price Index showed prices rose 3.2% over the previous 12 months in February, more than January’s annual rate of 3.1%. “Core” inflation, which excludes volatile prices for food and energy, declined to 3.8%, down from 3.9% in January. Both numbers were slightly more than economists expected, according to a survey by Dow Jones Newswires and the Wall Street Journal.
Prices rose 0.4% over the month, an acceleration from the 0.3% monthly increase in January.
This is the second consecutive month that inflation was more stubborn than forecasters thought, driving concerns that price increases could be reaccelerating.
Read more about the inflation report here.
This blog post has been updated to include additional information about the prior month’s CPI and included a link to an article.