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The consumer price index rose 0.1% last month, relatively in line with the flat reading expected. Higher rents and grocery costs contributed to a slight increase in the cost of living, but there has been no significant impact on costs related to the coronavirus outbreak as of yet, despite shopping frenzies for certain products like toilet paper and hand sanitizer.

Key Takeaways

• The CPI rose 0.1% vs. no change expected according to the latest report from the government on Wednesday.
• The annual cost of living ticked downward from 2.5% to 2.3%.
• Inflation pressure remains low by historical standards.

Annual CPI came down from January’s 15-month high of 2.5% to 2.3% in February. Food costs rose 0.4%, the largest increase in a year, with grocery products leading the increase. Prices have risen less than 1% in a year, which is not considered major. Rents have risen more significantly, particularly in large urban centers. Rents rose 0.3% last month, bringing the annual gain to 3.3% in the 12 months through February. The costs of clothes, used vehicles, education, car insurance, and medical care all rose last month.  Wages rose 0.3% last month, and only rose 0.6% for the year.

Context for that. Here is the median CPI (which doesn't come out until later) vs the 10y CPI swap rate. Clearly, market participants expect something big and negative. pic.twitter.com/OBNUYpHB0V

— Michael Ashton (@inflation_guy) March 11, 2020

Energy prices declined, with gas in particular seeing reduced prices. Airline fares and recreational goods costs also ticked downward in February. Airline companies have implemented price cuts to incentivize more people to fly amid the worldwide travel restrictions and uncertainty connected with the coronavirus outbreak, which has kept many people in their homes. Core CPI, which eliminates the volatile costs of food and energy, rose 0.2% last month. Core CPI rose 2.4% annually in February compared to 2.3% for the prior four months.

Inflation

The threat of inflationary pressures on the US economy are now very low in the short-term. The Federal Reserve implemented an emergency rate cut recently and is likely to do the same soon to shield against the possibility of recession amid the de-escalating trade war with China and the rising economic headwinds emerging from the coronavirus crisis. While some goods have seen costs increase due to shoppers panic-buying in bulk, other goods are seeing falling costs due to reduced demand.

A greater threat is the general impact the outbreak will have on the US economy, with major equities sell-offs and market volatility seen in recent weeks.

Market Reaction

Gold prices have seen strong growth in today’s session. Spot gold last traded at $1,661.42/oz, up 0.14% with a high of $1,670.84/oz and a low of $1,646.20. April gold futures are currently at $1,666.60/oz, with the markets predicting an ongoing use case for gold as a safe haven asset amid the rising threat of the virus outbreak to the world economy. Major events around the world, including all St. Patrick’s Day Parades in Ireland, have been canceled, impacting the international tourism and travel industries.

The Bank of England cut interest rates 0.5% overnight, and Saudi Arabia continues to battle with Russia in an oil price war due to the falling demand for fuel amid the outbreak.