US inflation rises to 3.2% in February

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US inflation rose unexpectedly to 3.2 per cent last month, in data set to be scrutinised by the US Federal Reserve as it decides when to reduce interest rates.

Economists polled by Bloomberg had expected the annual rise in consumer prices to remain unchanged from January’s rate of 3.1 per cent.

The consumer price inflation numbers are expected to play an important part in the Fed’s meeting next week, when rate-setters are due to vote on whether to cut rates from their 23-year high of 5.25 to 5.5 per cent.

The March 20 meeting will also detail how many cuts the Fed currently plans. At present, the central bank plans to reduce rates three times this year. Markets expect three or four cuts during the course of 2024.

Torsten Sløk, chief economist at the Apollo Global Management, said Tuesday’s figures from the Bureau of Labor Statistics would keep pressure on the US central bank to keep borrowing costs higher for longer.

“Inflation has started to move sideways and remains well above the Fed’s 2 per cent inflation target,” he said.

However, US stock futures extended gains after the data release.

Contracts tracking the S&P 500 index rose 0.5 per cent, while those tracking the technology-heavy Nasdaq 100 increased by 0.7 per cent.

Government bonds were subdued, with the policy-sensitive two-year Treasury yield and the benchmark 10-year yield both broadly flat at 4.55 per cent and 4.11 per cent respectively.

The dollar was unmoved on the day after trimming an earlier advance.

Tuesday’s figures showed core inflation, which excludes changes in food and energy costs, at 3.8 per cent, compared with 3.9 per cent in January. Economists had expected a fall in the metric, which is seen as a better measure of underlying price pressures, to 3.7 per cent.

The month-on-month headline figure for consumer price inflation rose from 0.3 per cent in January to 0.4 per cent last month.

The Fed targets an alternative measure of inflation — Personal Consumption Expenditures. However, with the February PCE figure not out until after the March 20 vote, the CPI data is expected to influence rate-setters’ deliberations.