US CPI Inflation Surges in February, Stoking Fed Rate Hike Fears

The February CPI report delivered a sharper-than-expected inflation reading, with the overall index rising 0.5% from January, according to the latest US government data. This marked the largest monthly increase since July 2023 and surpassed the consensus forecast of a 0.3% rise. The core CPI, which excludes food and energy, advanced 0.4%—also above the expected 0.3%—pointing to broad-based price pressures beyond volatile categories. The data underscores the ongoing challenge for the Federal Reserve in achieving its 2% inflation target. Year-over-year, headline CPI stood at 3.2%, while core CPI increased 3.3%, both holding steady from January. These figures suggest that inflation remains entrenched, particularly in services, where prices rose 0.5% in February. Housing and medical care costs were key contributors to the upward pressure. Financial markets reacted swiftly: the 10-year US Treasury yield (US10Y) jumped to 4.78%, its highest level since late 2023, as traders adjusted rate expectations. The CBOE Volatility Index (^VIX) spiked 14% to 18.6, reflecting heightened uncertainty. In commodities, crude oil futures (CL=F) rose 1.8% to $89.40 per barrel, driven by renewed concerns over supply constraints and inflation-linked demand. Equity markets showed mixed performance, with the S&P 500 dropping 0.7% as investors priced in a higher probability of a delayed rate cut. The technology sector, sensitive to longer-term interest rates, saw the largest losses, while consumer staples and energy stocks outperformed, benefiting from inflation-linked pricing power.