A closely-tracked measure of US consumer price inflation rose in line with expectations in February, according to figures released on Tuesday that are likely to reaffirm the Federal Reserve’s case for just three rate hikes this year.
The core consumer price index, which excludes volatile food and energy prices, showed prices were 1.8 per cent higher in February than the same month last year. The rate is unchanged from that reported in January and was as expected by the markets.
The headline index came in at an annual rate of 2.2 per cent growth however, up from the 2.1 per cent reported in January. On a month-on-month basis, headline prices rose just 0.2 per cent, a slowdown from the 0.5 per cent pace recorded in the month prior.
The inflation report comes after the jobs report on Friday showed wage growth remained subdued and prompted some to question whether that could crimp the potential for a faster pace of rate increases.
“With markets increasingly on the lookout for signs of positive US inflation surprises, today’s consumer price data is unlikely to make too many waves,” said James Smith, economist at ING.
“The key takeaway is that core inflation remained unchanged at 1.8% YoY, although there is still quite a lot of noise beneath the surface.”
Inflation has remained stubbornly below the Fed’s objective in recent years despite steady economic growth and an unemployment rate that is at a 17-year low.
However Fed officials have repeatedly said they expect the inflation weakness to be mostly transitory and that was one reason why the central bank lifted its benchmark rate three times last year. The Fed has projected another trio of quarter point rate rises for both 2018 and 2019.
Mr Smith at ING said he expects inflation will pick up in the months ahead, with strong consumer demand helping to push prices higher.
“This a key reason why we expect four rate hikes from the Fed this year,” he said.