Watch Inflation Continued to Fall in February With Some Items Rising at Slowest Pace Since 2021 | Economy – US Latest News

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‘ Inflation Continued to Fall in February With Some Items Rising at Slowest Pace Since 2021 | Economy – US News Youtube HD Video Online

Consumer prices rose 0.4% in February, or 6% annually, in line with expectations and at the slowest pace since late 2021, the Labor Department reported on Tuesday.

The numbers matched the expectations of economists and were declines from January’s 0.5% and 6.4% levels.

Both the overall consumer price index and the core index, leaving out often volatile energy and food costs, rose at the lowest rate since September and December of 2021, respectively. The core index was slightly above forecasts.

Still, prices for some items are increasing at a healthy pace, with energy prices up 5.2% for the year and food costs up 9.5%.

Costs for shelter were the largest contributor to the overall increase, accounting for 70% of the monthly rise. However, because of the way the government measures the cost of housing, this number tends to lag considerably, and several private reports show rents have either stabilized or are beginning to come down.

“Housing costs are a key driver of the inflation figures, but they are also a lagging indicator,” said Lisa Sturtevant, chief economist at Bright MLS. “It typically takes six months for new rent data to be reflected in the CPI. The quirk in how housing cost data are collected contributes to overstating current inflation.”

“Partially as a result of this methodological issue, the Federal Reserve has been paying more attention to so-called ‘supercore’ inflation, which zeroes in on services and excludes food, energy, and housing,” Sturtevant added. “The measure of ‘supercore’ inflation has fallen, though it still remains above the Fed’s 2% target.”

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On Tuesday, the Federal Reserve Bank of New York issued its latest inflation expectations report, finding a sharp drop in what consumers think inflation will be a year from now, to 4.2% from the previous 5% and the lowest reading since May 2021.

The report follows a February jobs report that, while coming in better than forecast, still showed some signs of a slowdown in the labor market and a slowing in the pace of wage inflation.

Along with a report on producer prices out Wednesday, the CPI is the last data dump on inflation prior to the Federal Reserve’s meeting later this month, where it will consider how much to raise interest rates. Fed Chairman Jerome Powell told Congress last week the Fed needs to keep raising rates as inflation remains well above the central bank’s 2% annual target. But the moderation in the labor market and some other economic data had some forecasters saying the Fed could perhaps settle on a quarter point increase.

All of those assumptions were upended on Sunday when the government announced emergency plans to provide support to the banking system following the collapse of Silicon Valley Bank on Friday. Fears of a broader, systemic problem with the banking industry as two other banks failed in recent days has some observers now suggesting the Fed may postpone a rate increase until it is clearer that the financial system is not overly strained.

SVB, a lender to the high-tech industry, had a preponderance of uninsured deposits and got caught holding a portfolio of long-term bonds that had lost value as the Fed raised rates rapidly during the past 12 months. While the bonds would have paid out if held to their maturity, the bank needed to sell some at a loss to bolster its capital as customers attempted to withdraw funds in a panic brought on by rumors about the bank’s solvency.

Fears of more bank failures harkened back to the days of 2008, when the famed Wall Street firm Lehman Brothers collapsed in the midst of a housing finance crisis. A month later, with Wall Street in a freefall, Congress approved a massive bailout of the financial system.

“This is not like the credit crunch of the Great Financial Crisis,” Jeffrey Roach, chief economist at LPL Financial, said Monday. “Rather, this is a concentrated issue for under-diversified financial firms insufficiently hedged against rising rates. Therefore, investors should not expect the Fed to divert its focus on squelching inflation.”

“The Fed will likely hike by another 25 basis points at the next meeting,” Roach added. “However, the rising risks to the economy could likely influence the Fed to stop raising rates by the summer time.”

Nomura Securities warned that if the Fed were to step up its monetary tightening, the risk of a policy mistake would increase.

“The lagged impact of past rate hikes could now materialize in a draconian way,” the firm said in an updated report issued Monday. “We believe a tightening of financial conditions through bank loans could potentially steer the economy into a recession starting in H2 2023.”

“However, the process may be accelerating, potentially moving forward a recession and exerting disinflationary pressures with some lag,” Nomura added.

Prior to SVB’s collapse, economists and the Fed were dealing with a different reality: an economy that was proving stronger than expected and more resilient in the face of a Fed that had raised interest rates by more than 4 percentage points in a year.

Some feel the economy remains in good shape. But if the problems at a few banks are evidence of deeper problems, the economy may succumb to a recession that many have been predicting for more than a year.

“I think the real economy is doing reasonably well notwithstanding the events of last week,” said Curt Long, chief economist at the National Association of Federally-Insured Credit Unions.

We update US news from official website – www.usnews.com .

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