The Consumer Price Index report, a gauge of inflation at the consumer level, showed a .2% increase for February. This matched the core inflation number as well. That was expected, coming down from the month before of a .5% increase. This left the 12-month rate of 1.8% well within the Fed’s expectation. Most of the increase of inflation was in rent and home prices last month. There was a small surprise in the cost of cars and trucks which fell .5%, the largest decline since 2009.
Inflation is a key to interest rates. This report keeps the Fed on track for raising the rates three times this year but if inflation begins to accelerate faster than expected it might be four times this year. The Fed has moved rates at a .25% pace for years whenever they move, but they have the option to change that steady pace if they wish. However, that does not seem likely; therefore they would increase the number of times they increase rather than the amount.
As investors, the direction of interest rates are important as increasing the rate usually slows economies, but because it is so low, so far there has been no reaction. Then again it takes months for the rate change to filter into the economy.