February inflation in line with expectations as Iran war overshadows last month’s data

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The Consumer Price Index rose 0.3% last month from January, also matching the expectations of economists polled by Reuters, after rising 0.2% the previous month. The in-line report on Wednesday morning is cast in shadow by the U.S.-Israeli war against Iran, which has driven a large rise in crude-oil prices and sparked investor concern about inflation down the road.

MARKET REACTION:

STOCKS: U.S. stocks opened mixed after the inflation data. The .DJI Dow Jones Industrial Average was down 0.1%, the .SPX S&P 500 was up 0.1% and the .IXIC Nasdaq Composite was up 0.3%.

BONDS: U.S. Treasury yields rose after the inflation report. The yield on benchmark U.S. 10-year notes US10YT=RR was last 4.18%, up 5 basis points.

FOREX: The dollar index =USD was up 0.3% at 99.12.

COMMENT:

JUAN PEREZ, DIRECTOR OF TRADING, MONEX USA, WASHINGTON:

“With evidence that price growth remains stubborn, it makes sense for the buck to rise naturally in addition to the fact that it benefits from its safe-haven role in the midst of chaos as well as the most necessary way to purchase oil. I feel the buck could be further helped if we get a surprise announcement that leads to a path towards resolution and ceasefire.”

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK:

“This is good news in a sense that we’re not seeing any acceleration. In fact, on a year-to-year basis, 2.4% is not that far away from the Fed’s 2% [target]. So I would say this is a relief.

“Of course, these numbers are subject to what happens with the war, and if the war should continue for a sustained period of time and oil prices stay at these prices or head higher, then we’re looking at higher inflation over the next few months.”

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN:

“February’s inflation numbers were heading in the right direction, but then along came the conflict in the Middle East and now the path is changing. Instead of deflation from energy, we will get inflation. Food prices could show signs of inflation acceleration as the fertilizer market is in chaos.

“The food and energy components of the CPI make up 20% of the consumer basket, but they punch above their weight in shaping consumer perceptions of inflation. The Fed will probably talk about staying on hold and being vigilant in fighting inflation, but monetary policy won’t open the Strait of Hormuz, so their tough talk will be mere words.”

PADHRAIC GARVEY, REGIONAL HEAD OF RESEARCH, AMERICAS AND HEAD OF GLOBAL RATES AND DEBT STRATEGY, ING, NEW YORK:

“It came in as expected. Given the tariff story we’ve been dealing with over the past nine months, I think there’s a tolerance for CPI to be around 2.5%. This is OK. The thing about this number, however, is that it’s very much in the rear-view mirror because it’s a February number and there’s stuff going on at the moment which puts upward pressure on prices going forward, clearly given the war in Iran.”

ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH, FAIRFIELD, CONNECTICUT:

“The report didn’t dramatically change my point of view, but it didn’t help improve it. If the war wasn’t going on and we weren’t seeing oil going crazy, I’d look at this report as not all that helpful and slightly negative. Because we do know that oil is going to have a negative impact on consumer prices there’s nothing in this report that helps change my mind to be more positive on inflation. It’s rising and it’s a matter of by how much and for how long.”

BRAD CONGER, CHIEF INVESTMENT OFFICER, HIRTLE CALLAGHAN, BRYN MAWR, PENNSYLVANIA:

“Reading too far into today’s CPI in most respects amounts to arguing over the dinner menu on the Titanic, since the economy has struck an energy cost iceberg. In our view, it confirms that underlying inflation is tracking with employment – which is to say, downward trending. We are adding to our long duration in Treasurys.”

CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, NORTHLIGHT ASSET MANAGEMENT, CHARLOTTE, NORTH CAROLINA:

“The good news is that inflation didn’t come in higher than expected in this morning’s CPI report; however, this is backward-looking data from before the war in Iran began. It is generally assumed – and we agree – that the Fed is going to be on hold for longer now, as they wait to see if inflation expectations rise and become embedded, or if everything will go back to where it was prior to the military operations in the Middle East.”