- Consumer prices climbed 7.9% over the last year, the sharpest increase since January 1982.
- Core inflation, without food and energy costs, rose 6.4%, highest since August 1982.
- Necessities, food, shelter and gasoline were the biggest components of the CPI increase.
- Real wages fall 0.8% in February and have declined 2.6% on the year.
American consumer prices rose at the steepest rate in four decades, and are poised to go higher as the Ukraine war drives energy and commodities expenses to double digit gains.
The February Consumer Price Index (CPI) increased 7.9% in a year, the seventh month in a row that the index has set a new 40-year record, and the fastest increase since January 1982, reported the Bureau of Labor Statistics on Thursday. For the month prices jumped 0.8%.
Core prices, which exclude food and energy costs, rose 6.4% on the year, their sharpest gain since August 1982, and 0.5% in the month.
Food prices, a grouping that includes restaurant and home meals, rose 1% last month, 7.9% annually. Groceries rose 1.4% in February and 8.6% over 12 months.
Energy continued its runaway increases, soaring 3.5% in February and underpinning about one-third of the overall CPI rise. Gasoline of all types rose 6.6% and fuel oil, used to heat many older homes, added 7.7%. They are 38.0% and 43.6% higher respectively on the year. Piped natural gas, for heating and cooking, was 1.5% higher on the month and 23.8% for the year.
Shelter expenses climbed 0.5% in February and 4.7% over 12 months, which was the most rapid annual increase since May 1991.
Inflation has been stoked by several factors including supply-chain disruptions from the lockdowns, a shortage of labor and raw materials, and strong consumer demand as the pandemic fades, all backed by an unprecedented binge of spending flooding out of Washington.
US Bureau of Labor Statistics
Ukraine and energy
The invasion of Ukraine and the subsequent market dislocations and sanctions on the Russian economy have sent oil prices flying higher. In the eight trading days this month to Thursday’s close, Brent, the international pricing standard, has added another 9.9%. West Texas Intermediate (WTI), the US and North American gauge, is 8.6% higher.
On Wednesday, March 8 Brent had closed at $127.30, a 30.2% increase and WTI finished at $122.50, up 28.8%.
Cease-fire negotiations on Thursday failed to reach an agreement on any of the points under discussion. Russian troops continue to gather around Kyiv and to shell and bombard several cities in Ukraine. If Russia attacks Kyiv, which the Ukrainians have vowed to defend, energy prices could easily spike again, especially if the Europeans stop importing Russian oil and natural gas.
Real Average Hourly Earnings, adjusted for inflation, slipped 0.8% in February. Earnings from the payrolls report were flat and CPI rose 0.8%. On the year, seasonally adjusted real wages declined 2.6%.
Consumer purchasing power has been shrinking since last April as inflation has accelerated faster than wage have increased, despite the exceptionally tight labor market and the record number of unfilled jobs over the past seven months.
Market responses were subdued as 7.9% CPI met the consensus estimate and traders remain focused on Ukraine and the Federal Reserve meeting next week.
The Dow lost 112.18 points, 0.34% to 33,174.07, though it was considerably lower and slightly higher through the course of the day. The S&P 500 shed 0.43%, 18.36 points to 4,259.52 and the Nasdaq dropped 125.58 points, 0.95% to 13,129.96.
Treasury yields continued their rise with the 10-year note finishing at 2.009%, up 14 basis points and the 2-year closed at 1.719% up 4 points.
European currencies lost about half of yesterday’s gains. The EUR/USD ended at 1.0977, down from 1.1071 and the sterling dropped about a figure from 1.3186 to 1.3084. The US dollar rose versus the Japanese yen, moving from 115.81 to 116.12.
Bitcoin reversed Wednesday's gain, falling from 41,964 to 38,430.
ECB and Fed policies
The European Central Bank (ECB) left its policy rate unchanged at -0.5%, though President Christine Lagared did announce a more rapid departure from its bond support program, ending it in June.
The Fed will raise its base rate 0.25% at this month’s meeting, initiating a series of increases, the end point of which is open to much speculation. The fed funds futures market estimates at least five increases to a base of 1.50%-1.75% by the final Fed meeting on December 14.
The Fed’s own projections will be updated at the March meeting. In the prior set from December, the bankers anticipated three rate hikes to the end of the year.
February CPI did not add any information to the economic and policy mix. The Ukraine war has intensified the price pressures in the US and around the world and markedly increased the economic distress. A prolonged bout of inflation, with soaring energy costs could spin the global economy into recession.
The Fed will inaugurate its rate cycle on March 16, beyond that there is almost no certainty.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Follow us on Telegram
Stay updated of all the news
EUR/USD stabilizes above 1.0750, looks to post modest weekly gains
Following the sharp decline witnessed in the European session, EUR/USD has managed to recover modestly and seems to have stabilized above 1.0750 amid an improvement seen in market mood. The pair remains on track to end the week modestly higher.
GBP/USD holds above 1.2200 heading into the weekend
GBP/USD retraced a small part of its daily decline in the American session after having tested 1.2200 earlier in the day. The US Dollar has lost some strength with Wall Street's main indexes rebounding from opening lows, allowing the pair to limit its losses.
Gold retreats after facing resistance at $2,000
Gold price climbed above $2,000 in the early American session but reversed its direction. With the benchmark 10-year US Treasury bond yield recovering from daily lows after Wall Street's opening bell, XAU/USD struggles to keep its footing and trades at around $1,990.
Breaking: Binance suspends spot trading, citing issues
Binance, one of the world's largest cryptocurrency exchanges by trading volume, announced that it halted spot trading. The announcement from the exchange caused BTC and ETH to drop by nearly 3% and 4%.
Deutsche Bank Stock Forecast: DB shares drop 6% at open following bond sell-off
Deutsche Bank (DB) is the newest bank that has the market worried. Shares opened down more than 6% on Friday and at the time of writing are trading off -6.8% at $8.99.