10-Year Treasury Yield
U.S. Treasury yields climbed Thursday after hotter-than-expected wholesale inflation report worried traders about its potential impact on Federal Reserve policy going forward. Yields on the 10-year Treasury note rose about 10 basis points to 4.28%, while the 2-year Treasury yield was last at 4.69%, up about 7.2 basis points.
CPI Consumer Price
Inflation pressures remained persistent in February, as prices for shelter and gas rose, according to the latest data from the Bureau of Labor Statistics released Tuesday morning. The Consumer Price Index (CPI) showed prices rose 0.4% over the previous month and 3.2% over the prior year in February, more than forecast and an acceleration from January's 0.3% monthly increase and 3.1% annual gain. This marked the largest monthly increase since September. On a "core" basis, which strips out the more volatile costs of food and gas, prices in February climbed 0.4% over the prior month and 3.8% over last year. Both measures were higher than economist expectations of a 0.3% monthly increase and a 3.7% annual gain. The consumer price index, a broad measure of goods and services costs, increased 0.4% for the month and 3.2% from a year ago. The monthly measure was in line with expectations while the 12-month reading was slightly higher.
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The Federal Reserve on Wednesday held interest rates steady at a range between 5.25%-5.5% as expected, and reiterated its guidance for three 25 basis point interest rate cuts throughout this year. Market futures are pricing around a 70% chance that the first cut comes at the Fed’s June 11-12 meeting, according to CME Group’s FedWatch tool. The cut expectations remain despite projections of stronger growth, lower unemployment and slightly higher-than-expected core inflation, prompting a slight increase in the central bank’s long-run policy rate forecast.
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Jobless Claims
Also, initial filings for unemployment insurance nudged lower to 209,000 last week, a decrease of 1,000 and below the estimate for 218,000, the Labor Department reported. Continuing claims edged higher to 1.81 million, though the previous week’s count was revised sharply lower.
PPI
The PPI is considered a leading indicator for inflation as it indicates costs early in the supply chain. The producer price index rose 0.6% in February. Core PPI, which strips out food and energy, gained 0.3%. Economists polled by Dow Jones expected an increase of 0.3% for the headline number and a 0.2% advance for core PPI. Earlier this week, the consumer price index for February also came in slightly higher than expected, rising 0.4% on a monthly basis and 3.2% from a year earlier.
Wholesale prices accelerated at a faster-than-expected pace in February, another reminder that inflation remains a troublesome issue for the U.S. economy. The producer price index, which measures pipeline costs for raw, intermediate and finished goods, jumped 0.6% on the month, the Labor Department’s Bureau of Labor Statistics reported Thursday. That was higher than the 0.3% forecast from Dow Jones and comes after a 0.3% increase in January. Excluding food and energy, the core PPI accelerated by 0.3%, compared with the estimate for a 0.2% increase. Another measure that also excludes trade services rose 0.4%, compared with the 0.6% gain in January, and was above the estimate for a 0.2% advance. On a year-over-year basis, the headline index increased 1.6%, the biggest move since September 2023.
Retail Sales
Retail shows rebound. On the retail sales side, the data indicated that consumers kept ahead of CPI inflation, which increased 0.4% on the month, though sales were still sluggish.
Excluding auto, retail sales rose 0.3%, one-tenth of a percentage point below expectations. Motor vehicle parts and dealers saw an increase of 1.6%, second only to the 2.2% gain for building material and garden centers on the month. Despite slumping prices, gasoline stations reported an increase of 0.9%. Electronics and appliance sales rose 1.5% while miscellaneous store sales climbed 0.6% and restaurants and bars were up 0.4%. Retail sales posted a 1.5% gain on a year-over-year basis, below the 3.2% increase in the CPI.
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