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US consumer inflation still elevated but Fed under pressure

WASHINGTON — US consumer inflation eased slightly in February but remains elevated, according to government data released Tuesday, adding pressure on the Federal Reserve as it balances its inflation struggle with financial stability concerns.

The central bank launched an aggressive campaign to curb the inflation and raised interest rates eight times since the beginning of last year to calm demand.

While Fed Chair Jerome Powell initially said the Fed was ready to increase the pace of rate hikes if needed, last week’s collapse of Silicon Valley Bank (SVB) and New York’s Signature Bank could complicate their efforts as the Economic data running hot.

The Consumer Price Index (CPI) rose 6 percent year-on-year, down from January and in line with expectations, Labor Department data released on Tuesday showed.

Although this was the smallest annual increase since September 2021, the level remains well above policymakers’ longer-term inflation target of 2%.

Between January and February, the CPI rose 0.4 percent and also slowed from the previous month.

“The index for shelter was the largest contributor … accounting for over 70 percent of the increase,” the Labor Department said in a statement.

It added that indices for food, leisure, and household equipment and operations also contributed.

In particular, the food index is up almost 10 percent year-on-year in February, with restaurant prices remaining high.

Meanwhile, the cost of accommodation and transportation services rose, underscoring challenges in bringing down inflation.

Excluding the volatile food and energy segments, the CPI rose 0.5 percent from January, down from the previous month’s read.

– Financial Stability Key –

While many analysts had predicted the Fed could step up interest rate hikes as the economy runs hotter than hoped, some are now trimming back their expectations.

The Fed and other central banks around the world have been raising interest rates since last year to stem decades of inflation.

This helped several lenders post healthy gains for 2022, but higher interest rates have also lowered the value of bonds bought by banks when they had lower yields.

The SVB collapsed after suffering a $1.8 billion loss on the sale of $21 billion worth of securities.

The implosion marked the biggest bank failures since the 2008 global financial crisis and put the Fed in a difficult position as it tries to fight inflation without contributing to a sustained defeat in some bank stocks.

The data supports a 25 basis point rate hike at the upcoming Fed meeting, said economist Rubeela Farooqi of High Frequency Economics.

“However, the decision will ultimately depend not only on economic data, but also on financial stability concerns that could keep the Fed on the sidelines next week,” she said.

Source: Crypto News Deutsch

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