US Annual Inflation Rate Unchanged at 2.4 Percent

Consumer inflation held steady in February before the war in Iran began. Last month’s annual inflation rate was unchanged at 2.4 percent, according to new Bureau of Labor Statistics data released on March 11.

Core inflation, which removes energy and food categories due to their volatility, was flat at a 12-month rate of 2.5 percent.

Both readings were in line with economists’ expectations.

On a monthly basis, the inflation and core inflation ticked up 0.3 percent and 0.2 percent, respectively.

Shelter was the largest factor for February’s monthly increase, according to the bureau, rising by 0.2 percent. Shelter inflation rose to 3 percent year-over-year.

For the past several years, shelter has been sticky and stubborn, contributing to a sizable share of the consumer price index (CPI).

Households wrestled with higher grocery prices as the food index rose by 0.4 percent. Food away from home jumped by 0.3 percent.

The index for energy surged by 0.6 percent after sliding by 1.5 percent in January. Within this category, gasoline climbed by 0.8 percent, while fuel oil spiked by more than 11 percent.

Energy prices had been edging higher toward the end of February as markets were beginning to price in the conflict in Iran.

Despite growing concern about data centers consuming an enormous share of the power supply, electricity prices declined for the second consecutive month, falling by 0.7 percent.

Price pressures for tariff-sensitive items were again mixed in February.

The index for new vehicles came in at zero percent, while apparel surged by 1.3 percent. Appliances climbed by 3.1 percent, televisions dropped by 0.8 percent, and smartphones plummeted by more than 5 percent. Furniture and bedding were flat, while canned fruits and vegetables rose by 0.6 percent.

Market Reaction

Investors shrugged off the CPI data as the U.S. stock market was little changed before the opening bell.

Yields on U.S. Treasury securities were up across the board, with the benchmark 10-year topping 4.19 percent.

The U.S. Dollar Index, a measure of the greenback against a weighted basket of currencies such as the Japanese yen and British pound, reaccelerated midweek, advancing by about 0.2 percent.

“The good news is that inflation didn’t come in higher than expected in this morning’s CPI report. However, this is backward-looking data from before the war in Iran began,” Northlight Asset Management Chief Investment Officer Chris Zaccarelli said in a note emailed to The Epoch Times.

Warflation

The war in Iran has sent global energy prices soaring, creating a fresh headwind for firms and consumers for the foreseeable future.

While crude oil has eased after surpassing $110 per barrel on March 9, prices remain elevated—and the longer the war drags on, the greater the impact on day-to-day costs will be.

Energy prices were up in the middle of the trading week.

U.S. crude surged by about 4 percent on March 11 to roughly $87 per barrel. Brent, the global benchmark for oil prices, also swelled by 4 percent to above $91 per barrel.

Economists estimate that a $10 increase in oil prices typically leads to a 0.2 percentage-point boost in aggregate inflation.

Motorists have been feeling the pain at the pump.

As of March 11, the national average price of a gallon of gasoline is about $3.58, according to the American Automobile Association tracking website. This represents a 23 percent, or 68-cent, jump from a month ago.

“One thing I’m thinking about here is the impact on oil prices and when does that leak into the real economy,” John Belton, portfolio manager at Gabelli Funds, said in a note emailed to The Epoch Times.

“What I’m really focused on for the longer term is, to the extent that oil prices stay higher for longer, does that start to leak into inflation expectations, and does that derail this kind of disinflation story that’s been playing out for the last 12 to 18 months.”

While all the focus is on oil and natural gas, the Strait of Hormuz also handles other cargo, including pharmaceuticals, fertilizers, and construction materials.

A widely watched pipeline inflation unexpectedly surged in January.

The producer price index—a measure of goods and services paid by businesses and passed onto consumers—rose by 0.5 percent. Core producer inflation also advanced by 0.8 percent.

The Fed’s preferred inflation gauge—the personal consumption expenditure price index—edged up to a higher-than-expected 12-month rate of 2.9 percent.

Looking ahead, the Cleveland Fed’s Inflation Nowcasting model expects the March annual inflation rate to rise to 2.6 percent.

Fed Board member Christopher Waller said he does not think the spike in oil prices will lead to persistent inflation or push officials to change monetary policy.

“You’re going to see a spike in gasoline prices. That’s what American citizens are going ​to see when they go to the pump, and they’re going to ​stare and be a little shocked,” Waller said in a March 6 interview with Bloomberg Television.

“If it’s ⁠unwound in … a couple of weeks or even two months, it’s not going ​to be a big factor down the road.”

Futures market data indicate that the central bank will leave interest rates unchanged when policymakers meet next week.

Investors anticipate the next rate action in July or September, according to the CME FedWatch Tool.

“It is generally assumed—and we agree—that the Fed is going to be on hold for longer now, as they wait to see if inflation expectations rise and become embedded or if everything will go back to where it was prior to the military operations in the Middle East,” Zaccarelli said.