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U.S. inflation unexpectedly rose to 3.2% last month, in a set of data that will be scrutinized by the U.S. Federal Reserve as it decides when to cut interest rates.
Economists polled by Bloomberg expected annual consumer price growth to remain unchanged from January’s 3.1% rate.
Consumer price inflation data is expected to play a major role in next week’s Fed meeting, when rate makers will vote on whether to cut rates from their 23-year high of 5.25 to 5.5%.
The March 20 meeting will also provide details on the Fed’s currently planned cuts. The central bank currently plans to cut rates three times this year. Markets expect three or four cuts during 2024.
Torsten Sløk, chief economist at Apollo Global Management, said Tuesday’s data from the Bureau of Labor Statistics will keep pressure on the U.S. central bank to keep borrowing costs higher for longer.
“Inflation has started to move sideways and remains well above the Fed’s 2% inflation target,” he said.
However, US stock futures extended gains following the data release.
Contracts tracking the S&P 500 index rose 0.5%, while those tracking the tech-heavy Nasdaq 100 rose 0.7%.
Government bonds were subdued, with the monetary policy-sensitive two-year Treasury yield and the 10-year benchmark yield both broadly stable at 4.55% and 4.11% respectively.
The dollar remained unfazed a day after paring an earlier advance.
Data on Tuesday showed core inflation, which excludes changes in food and energy costs, at 3.8%, up from 3.9% in January. Economists had expected the benchmark, seen as a better measure of underlying price pressures, to fall to 3.7%.
The monthly consumer price inflation figure increased from 0.3% in January to 0.4% last month.
The Fed is targeting an alternative measure of inflation: personal consumption spending. However, as the February PCE data will not be released before the March 20 vote, the CPI data is expected to influence the deliberations of rate makers.