US CPI in February 2023 was as expected, bank stocks recovered

According to CME Group, after the CPI report, traders bet there is an 85% probability that the Fed will raise rates by 25 basis points.

According to the latest data released by the US Department of Labor, US inflation showed signs of cooling down in February 2023 after a sharp increase at the beginning of the year.

The consumer price index (CPI) increased by 0.4% month-on-month and by 6% year-on-year, lower than January's 0.5% and 6.4% respectively. This result is in line with economists' expectations. These two numbers are in line with the forecasts of economists polled by Dow Jones.

Excluding food and energy prices, core CPI increased 0.5% MoM, 0.4% higher than forecast and increased 5.5% YoY, matching forecasts.

The decline in energy costs helped boost the overall CPI as expected. Energy prices fell 0.6 percent month-on-month, but still rose 5.2 percent year-on-year. Besides, the decrease of 7.9% in fuel oil price also affected the energy component in CPI.

Food prices increased by 0.4% month-on-month and 9.5% year-on-year.

Housing costs - which account for a third of the CPI's share - increased by 0.8% month-on-month and by 8.1% over the same period. Fed officials expect housing costs and related expenses, such as rents, to slow through the rest of 2023.

"Housing costs are still a key driver of inflation, but they are also lagging cps indicators," said Lisa Sturtevant, Economist at Bright MLS. whether rents reflect in CPI".

Following the CPI report, traders bet there is an 85% chance the Fed will raise rates by 25 basis points, according to CME Group.

"Despite the banking sector's troubles, the Fed will still prioritize financial stability over growth and could raise 25 basis points at its next meeting," said Jeffrey Roach, economist at LPL Financial.

Dow Jones gained more than 300 points at the beginning of the session on March 14. Yields on two-year US government bonds rose 30 basis points to 4.33%. Banking stocks recovered after plunging in the previous session after the collapse of SVB.

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