As anticipated, US Consumer Price Index (CPI) inflation remained elevated in February, maintaining its “hot” streak. Analysts at the Bank of Montreal assess the Federal Reserve’s policy stance following the release of the inflation report.
Ugly inflation read will do nothing to soothe nerves on the FOMC
Headline inflation surged by 0.4% in the month, aligning with both our forecast and the consensus, but marks a worrisome acceleration from the already elevated 0.3% reading in January. The annual inflation rate saw a slight uptick to 3.2%.
Core CPI inflation, excluding food and energy, saw a slightly larger-than-expected increase of 0.4% last month, resulting in a year-over-year rise of 3.8%, compared to 3.9% in January. This presents a more modest slowdown than what was anticipated by the consensus. Of greater concern is the acceleration seen in the three-month and six-month moving averages of core inflation, signaling a troubling trend for the Fed, which aims to tame inflationary pressures.
The initial inflation report for February paints a bleak picture, offering no solace to the nerves within the Federal Open Market Committee (FOMC). Inflation remains a top concern that the Fed has yet to address effectively. It’s evident that the effects of restrictive monetary policy have not fully materialized, underscoring the necessity for a patient and slightly hawkish stance from the Fed to allow monetary measures to take full effect.
