inflation Sto a rate of 6% in the year ended February, the Bureau of Labor Statistics reported Tuesday, a welcome sign as the Federal Reserve prepares for a monetary policy meeting.
The much-anticipated CPI figure shows that inflation, while far too high, is cooling in response to the Fed’s aggressive rate hikes.
In the previous month, inflation was still at 6.4%. Tuesday’s report marks seven straight months of declines in annual inflation after the rate peaked at a whopping 9.1% in June.
SVB PULL: FED’S PLAN TO HIKE RATES FALLS DOWN
Overall, prices rose 0.4 percentage point between January and February (as opposed to on an annual basis), implying a slowdown from December to January, according to the index.
Meanwhile, “core” inflation, which excludes volatile food and energy prices, was 5.5% for the year ended February.
The higher prices are hitting consumers hard. Above all, the rising food prices have caused problems for many households. The price of chicken has increased by 8.8% over the last year, while dairy products have increased in price by 12.3%.
The news comes amid heightened tensions in the financial sector after the Federal Deposit Insurance Corporation announced on Friday that Silicon Valley Bank, known as SVB, had failed and been taken into state hands, followed by the crypto lender’s Signature Bank on Sunday . Officials gave reassurances over the weekend that the banking system was healthy.
“It’s a data point, a signal of the ongoing trend in Fed policy, but given the SVB, it raises questions about what the Fed will do next next week,” said Brian Marks, executive director of the University of New Haven’s Entrepreneurship and Innovation Program , said the Washington Examiner. He added that a softer rate hike was likely.
The Fed will meet next week to decide whether to raise rates, with some expressing concerns that another rate hike could lead to a recession. Investors were hoping for a cooler CPI report this week, meaning the Fed may hold off on raising rates this month amid the collapse of the SVB.
Meanwhile, despite what has now been a year-long string of interest rate revisions, the labor market has remained red hot.
Last week it was announced that the economy added 311,000 jobs in February. Employment gains have consistently been strong enough to keep the unemployment rate trending downward.
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The stronger jobs reports show that the Fed’s rate hikes are not yet having the effect officials want, and this could result in the Fed leaning toward a more aggressive monetary policy stance at its meeting later this month, despite the SVB debacle now repels this pressure.
Fed Chair Jerome Powell recently said that hot inflation reports and employment data “suggest that the final interest rate level will likely be higher than previously thought. If the body of data suggested that faster tightening was warranted, we would be willing to increase the pace of rate hikes.”
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