'US February CPI Rises Above 3% Again Due to Housing and Gasoline Costs... S&P 500 Hits Record High (Comprehensive)'

The U.S. Consumer Price Index (CPI) inflation rate for February this year exceeded market expectations, remaining in the 3% range. This was due to rising housing costs and gasoline prices. With inflation rates surpassing forecasts for two consecutive months, persistent inflation is expected to continue, leading to cautious views on Federal Reserve (Fed) interest rate cuts for the time being. However, investors interpreted the latest CPI data as not significant enough to alter expectations for a rate cut in June, resulting in a broad rise in the New York stock market.

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On the 12th (local time), the U.S. Department of Labor announced that the February CPI rose 3.2% year-over-year. This exceeded the expert forecast of 3.1% and was an increase from January's 3.1%. Month-over-month, the CPI rose 0.4%, matching expectations (0.4%).

The core CPI, which excludes volatile energy and food prices to show the underlying inflation trend, increased 3.8% year-over-year and 0.4% month-over-month. This also surpassed market expectations (3.7% and 0.3%, respectively). The core CPI is one of the inflation indicators closely monitored by the Fed.

Rising housing costs and gasoline prices pushed the CPI higher. Housing costs, which account for 35% of the CPI weighting, rose 0.4% month-over-month, a smaller increase compared to January's 0.6%. Gasoline prices increased 3.8% month-over-month, after a 3.3% decline in January. The U.S. Department of Labor stated that 60% of the monthly CPI increase was due to rising housing and gasoline prices. Prices for used cars, clothing, auto insurance, and airline fares also rose.

Service prices excluding housing and energy rose 0.5% month-over-month, a smaller increase than January's 0.8%.

The February CPI released on this day is the last major indicator before the Federal Open Market Committee (FOMC) meeting scheduled for June 19-20. The stickier-than-expected inflation indicates that more time is needed for inflation to fall to the Fed's 2% target. Fed officials had previously stated that they need greater confidence in the continued slowdown of inflation, and the February CPI data suggests that this cautious stance will likely persist for the time being.

Charles Schwab's Chief Bond Strategist, Cash Jones, commented, "The February CPI is probably a reason why the Fed will need to maintain its policy for a longer period." He added, "Although there is volatility, inflation appears to be stabilizing in its downward trend," and predicted, "The Fed will want to confirm further declines in inflation before cutting rates."

However, some analyses suggest that the February CPI increase is not enough to change expectations for a rate cut in June. Eric Rosengren, former President of the Federal Reserve Bank of Boston from 2007 to 2021, said, "Fundamentally, core inflation is gradually improving," and added, "As long as wages and salaries are declining, this report is unlikely to significantly change the overall view on a rate cut in June."

Investors are also maintaining their expectations for a rate cut in June. According to the Chicago Mercantile Exchange (CME) FedWatch tool, federal funds futures on this day reflected nearly a 70% chance that the Fed will cut rates by at least 0.25 percentage points at the June FOMC meeting, little changed from about 71% the day before.

Market attention is now turning to the March FOMC meeting. It will be closely watched whether Fed officials will provide views on the number of rate cuts this year. The key question is whether they will maintain the forecast of three cuts this year, as indicated at the December FOMC, or if opinions favoring two cuts will increase.

The New York stock market closed higher, digesting the CPI increase that was largely in line with expectations. The Dow Jones Industrial Average rose 235.83 points (0.61%) to close at 39,005.49. The S&P 500 index gained 57.33 points (1.12%) to close at 5,175.27, setting a new all-time high again. The Nasdaq Composite jumped 246.36 points (1.54%) to close at 16,265.64. Technology stocks surged as market expectations for rate cuts remained intact. Nvidia rose 7.16%, while Microsoft (MS) and Meta increased 2.66% and 3.34%, respectively.

Government bond yields are rising. The U.S. 10-year Treasury yield and the 2-year Treasury yield, benchmarks for global bond yields, each rose by 5 basis points (1bp = 0.01 percentage points), trading around 4.15% and 4.58%, respectively.

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