Inflation just hit a post-crisis high

Inflation is at a post-financial-crisis high.

The consumer price index (CPI) for February released Wednesday showed that “core” inflation, stripped of volatile food and energy costs, rose 2.3% year-on-year — a post-crisis record.

A big drop in the energy index (-6%) pulled down the overall basket of consumer prices, as increases in housing, apparel and medical-care costs boosted it.

This report adds to proof that inflation is finally starting to pick up steam. The Federal Reserve is betting, as it tightens monetary policy, that inflation will continue rising as temporary deflationary factors fade away. It has a 2% inflation target.

In a note to clients, Renaissance Macro’s Neil Dutta wrote:

The rise in underlying inflation implies lower real interest rates, which boosts household and consumer spending. Firmer core prices also suggests corporate pricing power is offsetting the squeeze on margins from a tighter labour market. The Fed will welcome this inflation news and continue to pursue a gradual course of action.

The Fed’s next policy decision is due Wednesday afternoon.

Compared to the prior month, core inflation rose 0.3%, higher than forecast.

And compared to the prior year, headline CPI rose 1%, and fell 0.2% month-on-month, as expected.

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