February CPI Data Could Influence Federal Reserve's Rate Decisions

Lately, everyone from economists to everyday folks has been keeping an eye on the US's core inflation rate, which basically tells us how much prices for regular goods and services are going up, not counting the always jumping around food and gas price

by Faruk Imamovic
February CPI Data Could Influence Federal Reserve's Rate Decisions
© Getty Images/Joe Raedle

Lately, everyone from economists to everyday folks has been keeping an eye on the US's core inflation rate, which basically tells us how much prices for regular goods and services are going up, not counting the always jumping around food and gas prices.

There's a lot of buzz about the inflation report coming out for February because what it shows could really affect what the Federal Reserve, or the Fed for short, decides to do about interest rates. And all of this is happening while we're getting all sorts of mixed messages from the big wide world, like tech giants making big moves and countries like China changing up their economic plans.

The numbers for February might just show us that price hikes are cooling down a bit, sticking to the trend we saw before January kicked in. Everyone's watching to see if the Fed will stick to its plans or change course based on these new numbers.

Economic Signals from Abroad

Lately, some big news from China has really perked up the mood in global markets. The country's leaders and big companies are all sending signals that they're aiming to grow China's economy by about 5% in 2024.

This news has made a lot of investors and stock traders pretty happy, shaking things up in financial circles around the world. Two of the biggest online shopping companies in China, Alibaba and JD.com, have been leading the charge.

They've decided to buy back a lot of their own stocks, which is like saying they believe their companies will keep growing strong. At the same time, China's banks are stepping up to help out China Vanke, a big company that builds homes and offices.

This move is a bit of a change in tune because, not too long ago, there were hints that the government might not bail out property developers in trouble. It looks like they're trying to keep the real estate market, which is a huge deal for China's economy, on stable ground.

All this action in China is making waves in stock markets around the world, especially for companies that build homes and offices. Their stock prices have been climbing, showing just how connected global businesses and government policies are with the ups and downs of the stock market.

Currency Market Movements and Implications

In the world of currency trading, the US dollar has been pretty stable when compared to the euro. However, the British pound has taken a bit of a hit. This seems to be because reports came out saying that folks in the UK aren't getting raises as big as everyone thought they would, which also caught the Bank of England off guard.

This news has made traders rethink their bets in the currency market, suggesting they believe the UK might ease up on interest rates. At the same time, the value of the US dollar compared to the Japanese yen has gone up a bit.

This is happening even though a lot of people were expecting the Bank of Japan to maybe change its money policies to help the economy. But the head of the Bank of Japan mentioned that spending in Japan isn't as strong as hoped, which has made traders less sure that big policy changes are coming right away.

This has had a ripple effect on how much yen is worth compared to the dollar.

Markets React To Latest Inflation Report© Getty Images/Michael M. Santiago

Anticipation and Impact of US CPI Report

Everyone's on the edge of their seats waiting for the US inflation report for February.

The Federal Reserve, which is like the big boss of US money matters, really wants to be sure inflation is getting close to their goal of 2%. The head of the Federal Reserve, Jay Powell, has basically said, "We need to see a bit more proof things are cooling down before we make any big moves." This report is a big deal because what it says could change how the Fed decides to handle interest rates, which can shake up everything from your savings account interest to how well the stock market does.

What everyone's looking out for is whether the report shows that inflation is slowing down in a way the Fed feels good about. If the numbers show that prices aren't rising as quickly, especially for things that don't change price too much from month to month, it might convince the Fed it's time to think about changing interest rates.

Keeping inflation in check without causing a big stir in the markets is the goal here.

Analysis of Core Inflation Components

The core Consumer Price Index (CPI) is like a thermometer for the economy's inflation, but it doesn't count the up-and-down prices of food and gas.

People are really looking forward to seeing the February numbers for this index because they're curious if the inflation we saw starting up in January is going to keep going or start to chill out. One of the big things everyone's looking at is the cost of "owner's equivalent rent" (OER), which is a fancy way of guessing how much homeowners would pay in rent for their own homes.

It's a big deal in figuring out the CPI. In January, the cost to rent went up more than expected compared to what people pay for actual rent, which made a lot of folks scratch their heads. They're hoping that in February, the numbers will show things getting back to normal, with both homeowners' rent costs and actual rent increases slowing down to about 0.3%.

This would be a sign that the cost of living in a place isn't shooting up too fast, which is important because how much it costs to live somewhere affects the overall inflation measure a lot. Then there's the super-focused look at inflation that doesn't include the cost of housing or rent, which had some unexpected jumps in January, especially in things like hospital bills and car maintenance.

People are wondering if these costs will keep rising in February or if they'll settle down, balancing out the recent upticks in inflation.

Super-Core Inflation and Other Considerations

The idea of "super-core" inflation is like taking a closer look at the inflation picture by zooming in on the cost of services that don't include housing.

Back in January, there was a bit of a surprise jump in prices in a few specific areas. Now, as we wait for February's numbers, we're going to see how widespread inflation was across these super-core areas. If inflation didn't spread as much as it did in January, it's a good sign, meaning inflation might be cooling off a bit.

Looking at the bigger picture of inflation, things like the cost of staying in hotels and flying have been going up, probably because people are feeling okay about spending on these extras. But we're still waiting to see how much this will push up inflation overall for February.

On the other hand, prices for used cars and clothes got a temporary bump from things like the weather and changes in the seasons, but they're not expected to make a big difference in February's inflation numbers.

Federal Reserve