US consumer prices increase solidly in February

US consumer prices increased in February amid sticky rental housing costs, but economists are divided on whether rising inflation will be enough to push the Federal Reserve to hike interest rates again next week after the failure of two regional banks.

The Consumer Price Index (CPI) rose 0.4% last month after accelerating 0.5% in January, the Labor Department said on Tuesday. That lowered the year-on-year increase in the CPI to 6.0% in February, the smallest annual gain since September 2021. The CPI rose 6.4% in the 12 months through January.

The annual CPI peaked at 9.1% in June, which was the biggest increase since November 1981.

Excluding the volatile food and energy components, the CPI increased 0.5% after rising 0.4% in January. In the 12 months through February, the so-called core CPI gained 5.5% after advancing 5.6% in January.

Economists polled by Reuters had forecast both the CPI and core CPI climbing 0.4% on a monthly basis. Monthly inflation is rising at double the rate that economists say is needed to bring inflation back to the Fed's 2% target.

The inflation report was published amid financial market turmoil triggered by the collapse of Silicon Valley Bank in California and Signature Bank in New York, which forced regulators to take emergency measures to shore up confidence in the banking system.

It was also released before the Fed's policy meeting next Tuesday and Wednesday, and followed a report last Friday showing a still-tight labor market, but cooling wage inflation. Economists said Tuesday's report remained important for policymakers despite the angst in financial markets.

Fed Chair Jerome Powell told lawmakers last week that the US central bank would likely need to raise rates more than expected; leading financial markets to expect that a half-percentage-point rate increase was on the table next week.

But those expectations were dialed back to 25 basis points after the employment report.

While financial markets on Tuesday still expected a quarter-percentage-point hike, according to CME Group's Fed Watch tool, fear of contagion from the banking crisis prompted some economists, including those at Goldman Sachs, to expect the Fed next week to pause its fastest monetary policy tightening cycle since the 1980s.

The Fed has increased its benchmark overnight interest rate by 450 basis points since last March from the near-zero level to the current 4.50%-4.75% range.