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Here's How CU Economist Views Higher-Than-Expected Inflation Number

WASHINGTON–Inflation in the U.S. during February was stronger than many had expected, and while most analysts continue to forecast the Fed will begin cutting interest rates later this year, it may do so later than had been forecast.

According to the Labor Department, consumer prices were up 3.2% last month over one year earlier. That’s slightly above the 3.1% many economists had predicted, and marks the second consecutive month of higher-than-expected price increases.

Kebede, Darwit

Dawit Kebede

“Inflation increased in February higher than expected, reversing the encouraging easing trend observed in the last quarter of the previous year. Both headline and core prices showed a monthly increase of 0.4%—an annualized rate of 4.8%. The increase in housing and gas prices were the main drivers contributing over 60% of the headline number,” said America's Credit Unions’ Senior Economist Dawit Kebede. “The Federal Reserve indicated repeatedly that it needs convincing data to show that inflation is heading to its target of 2% before it starts cutting rates. This target is based on the personal consumption index (PCE), which has lower weight on housing and reads lower than this consumer price index (CPI) report. 

“However, the increase in the prices of other service items and commodity prices rising slightly after several months of decline in the CPI report may cause the Federal Reserve to be cautious before starting to cut rates,” Kebede added.

Inflation Remains Stubborn

The Labor Department report shows core prices, which exclude food and energy items in an effort to better track inflation’s underlying trend, rose more than expected, both when measured from a year ago and a month ago.

What it all adds up to is a stubborn rate of inflation that continues to defy the Fed’s 2% target rate. However, the Fed uses a separate gauge measure inflation that is provided by the Commerce Department.

The Federal Reserve’s Open Market Committee is scheduled to meet next week.

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