The Labor Department on Tuesday reported a 6% year-over-year increase in the consumer price index (CPI) for February.
The SPDR S&P 500 (NYSE:SPY) is moving higher as expectaions for a less aggressive Federal Reserve continue to climb. Four experts laid out their expectations following the print.
What Happened: The headline CPI rose 6% in February, in line average economist estimates and down from 6.4% in January, according to data the Labor Department reported on Tuesday.
Core inflation, which excludes volatile food and energy prices, increased 5.5% last month, which was also in line with economist estimates.
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4 Experts Weigh In: Experts seem to agree that housing appears to be inflating the CPI reading, but costs appear to be trending lower and should show up in the data later this year. The consensus appears to be that the Fed is likely to see through the numbers and increasingly ease its stance moving forward.
Jeffrey Roach, chief economist for LPL Financial, made the case for a 0.25% rate increase later this month. Despite recent scares sparked by banking liquidity troubles, the Fed is likely to prioritize price stability, he said.
The central bank is likely to read through to easing shelter costs, he said, adding that as supply of housing units increase, prices will decline.
“Investors should expect inflation to improve in the latter half of this year and will likely be interested in taking on more market exposure in portfolios.”
Peter Essele, head of portfolio management for Commonwealth Financial Network, also highlighted the increase in shelter, which is moving in the opposite direction of most of the other major components.
“While the majority of expenditure areas continue to moderate, the shelter component continues to dominate, accounting for almost half of the increase in headline inflation over the last year,” Essele said.
He noted there is historically a 12-to-18-month lag for housing market changes, so he doesn’t expect the downturn in housing to show up in the shelter component of CPI until mid-2023.
“All in all, today’s release shows a moderating inflationary environment, with the possibly of Fed hikes ending in the June meeting,” Essele said.
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Joseph Brusuelas, principal and chief economist at RSM US, noted that when measuered on a three-month annualized average, housing is moving in the right direction, which “implies that further relief on inflation later this year is developing.”
Although he highlighted much of the same as the other experts, he still expects overall inflation to remain well above the Fed’s 2% target for all of 2023.
Mark Zandi, chief economist at Moody’s Analytics, also expects inflation to remain above the Fed’s 2% inflation goal for the rest of the year, but he expects it to come down to around 3% by year’s end.
Zandi said he was a bit surprised by the strength in the growth in the cost of housing services, but added that inflation is ultimately headed in the right direction.
“Of course, it would be nice if inflation moderated more quickly back to the Fed’s inflation target, but not at the cost of a recession. Better to be patient and tolerate inflation coming in more slowly and avoid a downturn,” Zandi said.
SPY Price Action: The SPY is ripping higher on the heels of the print. It was up 1.72% at $391.98 at the time of publication, according to Benzinga Pro.
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