U.S Core Consumer Prices Beat Expectations

The cost of living in the U.S. excluding food and fuel rose more than forecast in February, reflecting broad-based gains that helped keep a floor under inflation.

The so-called core consumer-price index climbed 0.2 percent for a second month, a Labor Department report showed Tuesday in Washington. The median forecast of economists surveyed by Bloomberg called for a 0.1 percent increase. Prices overall also climbed 0.2 percent, the first advance in four months, as fuel costs stabilized.

An improving job market is helping underpin consumer confidence, giving American companies a little more pricing power. Members of the Federal Reserve’s policy making Federal Open Market Committee are looking for inflation to accelerate and close in on their 2 percent target as they weigh the timing of their first interest rate increase since 2006.

“You’re going to see some floor built into prices,” said Jacob Oubina, a senior U.S. economist at RBC Capital Markets LLC in New York, which correctly forecast the increase in core prices. For the Fed, the report “will give them confidence that headline inflation will be near 2 percent in the medium-term, which is all they want at this point.”

Stock-index futures held earlier gains after the report and the yields on Treasury securities were little changed. The contract on the Standard & Poor’s 500 Index maturing in June rose 0.1 percent to 2,096.6 at 8:45 a.m. in New York. The yield on the benchmark 10-year note was 1.89 percent compared with 1.91 percent late on Monday.

Survey Results

The forecast for core consumer prices was based on the median of 85 economists in a Bloomberg survey, and estimates ranged from little change to a 0.3 percent increase. On a year-over-year basis, core prices climbed 1.7 percent in February after rising 1.6 percent in the 12 months through January.
The overall measure was projected to rise 0.2 percent, according to the survey median. Consumer prices were little changed in the 12 months ended February after falling 0.1 percent in the year through January.

Fed officials are keeping a close eye on inflation and need to be “reasonably confident” price growth will move toward their goal before they raise benchmark interest rates.

Bloomberg

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell