Breaking: US CPI inflation rises to 3.2% in February vs. 3.1% expected


Inflation in the US, as measured by the change in the Consumer Price Index (CPI), rose to 3.2% on a yearly basis in February from 3.1% in January, the US Bureau of Labor Statistics (BLS) reported on Tuesday. Annual Core CPI, which excludes volatile food and energy prices, increased 3.8% in the same period, below the January increase of 3.9% but above the market forecast of 3.7%.

On a monthly basis, the CPI and the Core CPI both rose 0.4%.

Follow our live coverage of the US CPI data and the market reaction.

"The index for shelter rose in February, as did the index for gasoline. Combined, these two indexes contributed over sixty percent of the monthly increase in the index for all items," the BLS noted in its press release. "The energy index rose 2.3 percent over the month, as all of its component indexes increased. The food index was unchanged in February, as was the food at home index. The food away from home index rose 0.1 percent over the month.

Market reaction to US CPI data

The US Dollar Index edged slightly higher with the immediate reaction and was last seen rising 0.08% on the day at 102.93.

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   0.08% 0.31% 0.09% 0.13% 0.67% 0.21% 0.03%
EUR 0.03%   0.33% 0.06% 0.15% 0.69% 0.23% 0.06%
GBP -0.31% -0.23%   -0.17% -0.30% 0.25% -0.20% -0.32%
CAD -0.09% -0.02% 0.22%   0.05% 0.42% 0.12% -0.07%
AUD -0.13% 0.06% 0.30% 0.13%   0.56% 0.09% -0.04%
JPY -0.66% -0.58% -0.36% -0.47% -0.56%   -0.43% -0.64%
NZD -0.21% -0.02% 0.20% 0.05% -0.08% 0.46%   -0.11%
CHF -0.02% 0.07% 0.28% 0.06% 0.10% 0.64% 0.18%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

 


This section below was published as a preview of the US Consumer Price Index (CPI) data at 03:00 GMT.

  • The US Consumer Price Index is set to rise 3.1% YoY in February, matching January’s increase.
  • Annual Core CPI inflation is expected to edge lower to 3.7% in February.
  • The inflation report could provide fresh clues as to the timing of the Fed policy pivot.

The high-impact US Consumer Price Index (CPI) inflation data for February will be published by the Bureau of Labor Statistics (BLS) on Tuesday at 12:30 GMT. Inflation data could alter the market’s pricing of the Federal Reserve (Fed) policy pivot, ramping up volatility around the US Dollar (USD).

What to expect in the next CPI data report?

Inflation in the United States (US) is forecast to rise at an annual pace of 3.1% in February, matching the increase recorded in January. The Core CPI inflation rate, which excludes volatile food and energy prices, is forecast to tick down to 3.7% from 3.9% in the same period.

The monthly CPI and the Core CPI are seen increasing 0.4% and 0.3%, respectively.

In his semi-annual testimony before the US Congress, Federal Reserve Chairman Jerome Powell said that the economic outlook was uncertain and that the ongoing progress toward the 2% inflation goal was not assured. Regarding the policy outlook, Powell reiterated that it will likely be appropriate to begin lowering the policy rate at some point this year but added that they would like to have greater confidence inflation will move sustainably toward 2% before taking action.

Previewing the February inflation report, “we expect next week's CPI report to show that core inflation slowed to a 0.3% m/m pace in February after posting an acceleration to 0.4% in the last report,” said TD Securities analysts in a weekly report. “Despite slowing, our m/m projection would keep the core's 3-month AR pace unchanged at a still elevated 4.0%. Note that our unrounded core CPI forecast at 0.31% m/m suggests balanced risks between a 0.2% and a 0.4% gain.”

How could the US Consumer Price Index report affect EUR/USD?

The Consumer Price Index (CPI) data for January showed that the disinflationary trend slowed down. The annual CPI and the Core CPI rose at a slightly stronger pace than in December. The positive impact of these readings on the US Dollar (USD), however, remained short-lived because markets were already anticipating a delay in the Fed policy pivot following the impressive labor market data for January. After rising 0.7% and touching its highest level since mid-November near 104.00 on the day of the January CPI release (February 13), the USD Index (DXY) went into a downtrend. 

Markets are currently pricing in a nearly 75% probability that the Fed will lower the policy rate in June, according to the CME FedWatch Tool. Although February CPI figures are unlikely to alter the market positioning in a significant way, a stronger-than-forecast increase in the monthly Core CPI could help the USD stage a rebound against its rivals with the immediate reaction. Investors could see such data as an opportunity to unwind USD shorts following the previous week’s sell-off.

On the other hand, a monthly Core CPI print at or below the market consensus of 0.3% could reaffirm June as the month of the policy pivot. The market positioning, however, suggests that the USD doesn’t have a lot of room left on the downside. In this scenario, the USD could weaken in the initial reaction, but an extended sell-off could be hard to come by unless it’s accompanied by a risk rally in US stocks or a sharp decline below 4% in the benchmark 10-year US Treasury bond yield.

Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD and explains: “The Relative Strength Index (RSI) indicator on the daily chart edged lower after coming within a touching distance of 70, suggesting that investors are taking a break before betting on another leg higher in EUR/USD. On the upside, 1.0960 (Fibonacci 23.6% retracement level of the October-December uptrend) aligns as interim resistance ahead of 1.1000 (psychological level, static level). If the pair manages to stabilize above the latter, 1.1100 (end-point of the uptrend) could be set as the next bullish target.”

“Looking south, strong support seems to have formed at 1.0830-1.0840, where the 100-day and the 200-day Simple Moving Averages (SMA) are located. A daily close below this support area could open the door for an extended correction toward 1.0800.”

 

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

 

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