US inflation rises in line with expectations in February

US inflation data for February came in as expected on Tuesday, no doubt helping to assuage concerns about rising inflation as investors try to gauge whether the Federal Reserve will hike rates three or four times this year.

According to the Labor Department, the consumer price index rose 0.2% last month following a 0.5% increase the month before, in line with economists' expectations.

Over the last 12 months, the index was up 2.2% compared to 2.1% in January, also as forecast.

The core inflation rate, which excludes gas and food, was up 0.2% on the month and 1.8% on an annual basis, unchanged.

The apparel index continued to rise, up 1.5% in February following a 1.7% jump in January, but used vehicle prices fell by 0.3% on the month and new vehicle prices dropped by 0.5%, which was the largest one-month drop since August 2009.

David Morrison, chief market strategist at GKFX, said the data should help to calm nerves following an unexpected jump in consumer prices in January.

"At the beginning of February US stock indices experienced their largest and most protracted sell-off since early 2016 after a jump in average hourly earnings triggered inflationary fears which led to a spike in bond yields and volatility. This was compounded a fortnight later by an unexpected surge in CPI when the headline number rose 0.5% in January - well above the +0.1% rise from the previous month.

"Today’s data should help to take the pressure off equities and bonds - for the time being at least. Consequently, we shouldn’t be surprised to see US Treasury yields pull back and the major US stock indices continue their ascent, at least until we hear what the Fed’s FOMC has to say at next week’s meeting."

Meanwhile, Pantheon Macroeconomics said the year-on-year core inflation rate will jump in March, probably to 2.1%, on the anniversary of last year's one-time plunge in cellphone service plan prices.

"Everyone knows that's coming, but further base effects will then lift core CPI inflation to about 2.5% by the summer - a rate last seen in 2008, before the crash. That's not a disaster, but the Fed will be wary of adverse feedback loops in to inflation expectations and wage demands, so we're sticking to our view that they will hike four times this year."