U.S. inflation remained at its lowest level since May 2021, although it is still above the Federal Reserve’s target of 2%.
Energy prices increased at a higher rate in February, as fuel oil and natural gas prices accelerated, and food prices were also higher. On a monthly basis, CPI crept higher to 0.3%, up from 0.2% in January and in line with the market estimate.
Core CPI Remains at Lowest Level Since March 2021
Core CPI, which excludes food and energy and is considered a better gauge of inflation trends, remained steady at 2.5% year-on-year, also matching the market estimate. Along with the January reading, this marks the lowest level since March 2021. Monthly, core CPI rose 0.2%, down slightly from 0.3% in January and matching the market estimate.
Calm Before the Storm?
Today’s inflation was positive and the Federal Reserve will be pleased that core inflation remains at a four-year low and the monthly rate declined in February. Still, this could be the calm before the storm, as today’s report was published before the US and Israel attacked Iran on the final day of February.
The war, which has spread to the Gulf states, has sent oil prices as high as $119 a barrel this week, the highest level since 2022. Crude has since dropped to around $87, but the threat of further disruptions is very real. If the Strait of Hormuz continues to be effectively blocked, holding up the distribution of 20% of the world’s oil, oil prices could again shoot through the roof and severely damage the global economy. The sharp swing in oil prices this week has also led to strong volatility on Wall Street, as nervous investors closely monitor developments in the Middle East.
US Dollar Steady, Stock Markets Slightly Lower
Annualized CPI and core CPI both matched the estimates, and the US dollar has shown little movement against the major currencies on Wednesday. The exception has been the AUD/USD currency pair, which climbed 0.53% today, trading at $0.7156. The Australian dollar is on a tear, surging 1.8% this week, despite the geopolitical hotspot in the Persian Gulf. The Aussie is at its highest levels since June 2022.
The US stock market, which has had a roller-coaster week, is yet to open today. In pre-open trading, major US indices reacted little to the news, gaining slightly.
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