Inflation data cools in February, bigger rate cut to come?

March 14, 2008 - Forex Economic News

Inflation data in February surprised the market today as the data was unchanged for the month according to the Labor Department. The Consumer Price Index showed a 0.0 percent change in February after a 0.4 percent rise in January. The economic forecasts were expecting a 0.3 percent increase for the month of February. Most notably affecting the data was the decline of the costs of automobiles and gasoline and a 0.4 percent rise in food prices. The core cpi, which excludes food and energy costs, was also unchanged in February after a gain of 0.3 percent in January. Forecasts had expected a 0.2 percent rise in core cpi for February. The report also showed that the annual rate of inflation was 4.0 percent in February which was down from an annual rate of 4.3 percent in January. The annual rate for core inflation, excluding food and energy, was 2.3 percent in February verses 2.5 percent in January.

Bigger rate cut to come?

The moderate inflation data released today has potentially given the U.S. Fed the ability to make a more aggressive interest rate cut next week. Last month's rise in inflation data seemed to complicate the Fed's continual reduction of rates. Inflation had increased each month from September to January before February's unchanged inflation data. This change now eliminates the inflation obstacle to a big rate cut but how big will the rate reduction be? Many market participants and forecasters are betting on at least a 50 basis point cut with a 75 basis point cut a possibility at the next FOMC meeting on Tuesday the 18th.

Tags: inflation, us labor department, consumer price index, core cpi, interest rate cut

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