February CPI reading just came at 6% yoy growth, in line with the estimate of 6%
The Consumer Price Index for consumers rose 0.4 % in February on a seasonally adjusted basis, after increasing 0.1% in January. the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index less food and energy increased 5.5% before seasonal adjustment, its smallest 12-month increase since December 2021. Here is the breakdown of contributors (Chart 1). CPI is expected to show prices rose 6% over the prior year, according to estimates from Bloomberg. The S&P 500 futures is now up 1.28% on the inflation news.
The CPI report states that the primary cause of the monthly increase in consumer prices in the US was the shelter index, which contributed more than 70% of the rise. Other factors that contributed to the increase were the indexes for food, recreation, and household furnishings and operations. The food index rose by 0.4%, with the food at home index increasing by 0.3%. However, the energy index decreased by 0.6% due to a decline in the natural gas and fuel oil indexes.
Chart 1 CPI YoY change
Markets are now pricing in an 85% chance that the Federal Reserve will hike interest rates by only 25 basis points in March (Chart 2).
Chart 2 Target rate probability for Mar 22, 2023 meeting
When the inflation data is not as hot, the quality growth stocks will be the beneficiaries, especially technology stocks. The undervalued technology stocks provides investors great opportunities to capture high-quality growth stocks set to rebound and outperform the market.