February Inflation Rises, But Core Pressures Ease; Bonds Yields Fall

A softer-than-expected reading for core February inflation has bond yields in retreat ahead of today's 10-year auction, providing a pre-market boost for U.S. stocks.
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U.S. consumer price inflation sped faster last month, data from the Commerce Department indicated Wednesday, but core consumer price pressures remained muted, providing a boost for domestic stocks.  

Headline CPI was estimated to have risen 1.7% from last year, and 0.4% when compared to the month of January. So-called core inflation, which strips-out volatile components such as food and energy prices, rose by a softer-than-expected 0.1% on the month, and 1.3% on the year.

Inflation pressures around the world, however, are also building: factory gate prices in China rose 1.7% from last year in February, the country's official statistics office said Wednesday, while supply-chain disruptions and surging commodity prices look set to add further upside moves in the months ahead. 

"Whatever happened in February, core CPI inflation is set to rise sharply over the next three months as the initial COVID hit drops out of the calculation," said Ian Shepherdson of Pantheon Macroeconomics. "We expect the year-over-year rate to rise to about 2.4% by May, from 1.4% in January. Base effects then turn strongly negative in the second half of the year, but markets will be focused much more on the monthly run rate in order to cut through these distortions."

Benchmark 10-year Treasury bond yields eased by 1 basis points to 1.545% following release of the data, while U.S. equity futures turned sharply higher, with contracts tied to the Dow Jones Industrial Average now indicting a 160 point opening bell gain.

Contracts tied to the S&P 500 are indicating a 15 point boost while those linked to the tech-focused Nasdaq extended yesterday's gains and are now priced for a 75 point advance.