U.S. consumer price rose in February amid rising housing rental costs, but economists are divided on whether rising inflation will be enough to prompt the Federal Reserve to raise interest rates again next week after the failure of two regional banks.
The Consumer Price Index (CPI) rose 0.4% last month after posting a reading of 0.5% in January, the Labor Department reported on Tuesday. This pushed the year-on-year increase in the CPI down to 6.0% in February, the smallest annual gain since September 2021. The CPI rose 6.4% in the 12 months to January.
The annual CPI peaked at 9.1% in June, which was the largest increase since November 1981.
Excluding volatile food and energy components, the CPI rose 0.5% after rising 0.4% in January. In the 12 months to February, the so-called core CPI gained 5.5% after rising 5.6% in January.
Economists even forecast CPI and core CPI rising 0.4% on a monthly basis. Monthly inflation rose at twice the rate that economists say is needed to return inflation to the Fed's 2% target.
The inflation report was published amid financial market turmoil sparked by the collapse of Silicon Valley Bank in California and Signature Bank in New York, which forced regulators to take emergency measures to boost confidence in the banking system.
The data was released ahead of the Fed's policy meeting and follows a report last Friday that showed a still tight labor market. Economists said Tuesday's report remained important for policymakers despite worries in financial markets.
Fed Chairman Jerome Powell told lawmakers last week that the U.S. central bank likely to have to raise rates more than expected, causing financial markets to expect a rate hike of half a percentage point. But that expectation began to decline to 25 basis points after the jobs report.
Although financial markets on Tuesday still expected a quarter-percentage-point hike, based on CME Group's FedWatch tool, concerns about contagion from the banking crisis are prompting some economists, including those at Goldman Sachs to expect the Fed to halt its fastest cycle of monetary policy tightening since the 1980s.
