S&P 500 hits new record high as investors shrug off sticky inflation data

A hotter-than-expected February inflation print was largely driven by two components: shelter and gas.

The shelter index rose 5.7% on an unadjusted annual basis and 0.4% month over month, a deceleration from January’s 6% annual increase and 0.6% monthly rise.

Sticky shelter inflation is largely to blame for higher core inflation readings, according to economists.

The index for rent and owners’ equivalent rent (OER) rose 0.5% and 0.4% on a monthly basis, respectively. Owners’ equivalent rent is the hypothetical rent a homeowner would pay for the same property. In January, the index for rent rose 0.4% while OER increased 0.6%.

Seema Shah, chief global strategist at Principal Asset Management, highlighted that “while core services inflation was again hot, the all-important core services ex housing weakened from last month while shelter inflation nudged lower.”

Shah said that disinflationary trend is a positive but warned price pressures will subside “very gradually.”

“This print is just about enough to keep rate cut expectations for June stable — but another print like this next month would push the first cut into the second half of the year, putting the soft landing narrative in question,” the economist said.

Energy prices — largely to blame for the increase in headline inflation — rose following several months of declines, buoyed by gas prices. The index jumped 2.3% in February after falling 0.9% in January. Still, on a yearly basis, the index fell 1.9%.

Gas prices climbed a significant 3.8% from January to February after falling 3.3% the previous month. This was largely due to seasonality and a pullback in US refinery utilization.

Other indexes that rose in February included apparel, recreation, and used cars and trucks.

The BLS noted the airline fares index rose 3.6% in February following a 1.4% increase in January. The index for motor vehicle insurance increased 0.9% over the month.

The food index jumped 2.2% in February over the last year, with food prices holding steady from January to February. The index for food at home also held steady over the month after rising 0.4% in January.

Food away from home, however, ticked up 0.1% month over month after rising 0.5% in January.

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