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The inflation gauge rose 0.4% in February, as expected and up 6% from a year earlier

BusinessEconomyThe inflation gauge rose 0.4% in February, as expected and up 6% from a year earlier
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Inflation rose in February but was in line with expectations, despite recent banking industry turmoil that is likely to keep the Federal Reserve on track for another interest rate hike next week.

Consumer Price Index Rises 0.4% For The Month, Keeping Annual Inflation Rate At 6% Labor department informed Tuesday Both readings were exactly in line with Dow Jones estimates.

Excluding volatile food and energy prices, core CPI rose 0.5% in February and 5.5% on a 12-month basis. The monthly reading was slightly ahead of estimates of 0.4%, but the annual level was in line.

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Shares rose after the releaseTogether Dow Jones Industrial Average Soared over 300 points in early trade. Treasury yields, which fell on Monday amid fears over the health of the banking industry, rebounded solidly, pushing policy-sensitivity 2 year note increased by 30 basis points to 4.33%.

Leading up to the release, markets had widely expected the Fed to approve a 0.25 percent increase in its benchmark federal funds rate. That prospect rose after the CPI report, with traders now holding a nearly 85% chance the Fed will hike rates by a quarter point, according to one CME Group Estimates,

“Even amid the current banking scare, the Fed will still prioritize price stability over growth and is likely to hike 0.25% at the upcoming meeting,” said Jeffrey Roach, chief US economist at LPL Financial.

Lower energy costs helped keep the headline CPI reading under control. The sector fell 0.6% for the month, reducing year-over-year growth to 5.2%. A 7.9% drop in fuel oil prices was the biggest mover for energy.

Food prices rose 0.4% and 9.5%, respectively. Prices for meat, poultry, fish and eggs fell 0.1% for the month, marking the first time the index has retreated since December 2021. Eggs in particular fell 6.7%, though they were still up 55.4% from a year ago.

Shelter costs, which make up about one-third of the index’s weighting, jumped 0.8%, bringing the annual gain to 8.1%. Fed officials largely expect housing and related costs such as rent to slow during the year.

“Housing costs are a major driver of inflation data, but they are also a lagging indicator,” said Lisa Sturvant, chief economist at Bright MLS. “It typically takes six months for new rent data to be reflected in the CPI. Changes in how housing cost data are collected contribute to undermining current inflation.”

Because of housing expectations, Fed officials have turned to “super-core” inflation as part of their toolkit. Core services inflation minus housing, according to CNBC’s calculations, rose 0.2% in February and 3.7% from a year ago. The Fed targets inflation at 2%.

Used vehicle prices, a key component when inflation first starts rising in 2021, fell 2.8% in February and are now down 13.6% on a 12-month basis. Apparel rose 0.8%, while the cost of medical care services declined 0.7% for the month.

The CPI measures a broad basket of goods and services and is one of several key measures used by the Fed when formulating monetary policy. The report, along with Wednesday’s producer price index, will be the last inflation-related data points policymakers will look at before they meet on March 21-22.

turmoil in the banking sector Speculation has run rampant in recent days that the central bank could signal it will soon halt rate hikes as officials observe the impact of a series of tough measures over the past year.

On Tuesday morning markets were pricing in a peak, or terminal, rate of around 4.95%, meaning the upcoming increase could be the last. Futures pricing is volatile, however, and an unexpectedly strong inflation report this week could lead to a revaluation.

Either way, market sentiment has changed.

fed president Jerome Powell Last week told two congressional committees The central bank is prepared to push rates higher than expected if inflation doesn’t come down. This set off a wave of speculation that the Fed could hike rates by 0.5 percent next week.

However, the collapses of Silicon Valley Bank and Signature Bank over the past several days paved the way for a more accommodative approach to monetary policy.

“While only marginally higher than consensus, in a pre-SVB crisis world this may have prompted the Fed to hike 50 bp at its March meeting next week. How much has changed is that 50 bp is “almost certainly still off the table for March,” wrote Krishna Guha, head of global policy and central bank strategy for Evercore ISI.

Guha said it is still possible that the Fed keeps raising rates to a terminal rate in the “high 5s” if its efforts to restore stability in banking are successful.

— CNBC’s Gina Francola contributed to this report,

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