Inflation stabilizes, but rising oil keeps markets on edge
US inflation held steady in February, reinforcing expectations that the Federal Reserve is likely to keep interest rates unchanged in the near term, while analysts warn that rising oil prices and geopolitical tensions could complicate the outlook.
The Consumer Price Index rose 2.4% in February from a year earlier, matching economists’ expectations, while monthly inflation increased 0.3%, according to government data released Wednesday.
Core CPI, which excludes food and energy, rose 2.5% year over year and 0.2% on the month, also in line with forecasts.
Analysts said the report suggests inflation pressures are stabilizing but not fading quickly, leaving policymakers cautious as they assess new risks from higher energy prices.
Economists at Wells Fargo said the report highlights how the disinflationary momentum seen since last summer has become harder to sustain.
“Headline inflation rose 0.3% in February, leaving the year-over-year rate at 2.4% but pushing the more recent three-month pace up to 3.0%,” the bank said in a note.
The firm also expects the Fed’s preferred inflation gauge, the PCE price index, to remain firm, estimating both headline and core PCE will rise about 0.4% in February.
Still, the inflation data alone may not shift policy expectations ahead of the Fed’s next meeting. Wells Fargo said the report likely does little to sway policymakers as they focus on the uncertain outlook for energy prices amid the developing conflict with Iran.
Other market watchers struck a more reassuring tone, saying the data shows inflation pressures are stabilizing rather than reaccelerating.
“February’s CPI confirms inflation is stabilizing, not surging,” said Gina Bolvin, president of Bolvin Wealth Management Group. “That’s exactly what markets needed to see.”
Bolvin said the easing inflation environment favors companies with strong earnings and durable balance sheets as investors shift from the “panic phase” of the inflation cycle toward a more selective market.
However, some economists said underlying details in the report still show areas of concern for households.
Jeffrey Roach, chief economist at LPL Financial, noted that electricity and utility prices rose 0.5% in February, pushing the annual increase to 5.6%, while food prices remain elevated at just over 3% year over year.
“There are some encouraging signs,” Roach added, pointing to falling used-vehicle prices and continued deceleration in shelter costs, which have helped relieve pressure on overall inflation.
Roach said investors may ultimately look past the report because the data was collected before the outbreak of hostilities in the Middle East, which has already pushed oil prices sharply higher.
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