US: February inflation, bond issues, financial package

In the USA, headline CPI increased by 0.4% on a monthly basis and increased by 1.7% on an annual basis in February.

In the USA, headline CPI increased by 0.4% on a monthly basis and increased by 1.7% on an annual basis in February. On the core inflation side, where volatile items such as food and energy are excluded, there are 0.1% and 1.3% monthly and annual increases, respectively. Market expectations were 0.4% and 1.7% monthly and 1.7% in the headline CPI, and 0.2% and 1.4% monthly and 1.4% in the core CPI.


When we look at the sub items; Gasoline prices continued to rise, increasing by 6.4% in February, accounting for more than half of the seasonally adjusted increase in the all-item index. The electricity and natural gas indices also increased and the energy index thus increased by 3.9% during the month. The food index increased by 0.2% in February. While there was a low increase of 0.1% in February on the core inflation side, where food and energy were excluded; Housing, recreation, medical care and motor vehicle insurance indices increased throughout the month. Indices for airline fares, used cars and trucks, and clothing all fell in February.


At this stage, inflation is not a determining point on yields, as it does not indicate an explosion above expectations. Although bond yields have normalized to a slightly peak, the amount of demand for 10-year bond issues today and 30-year tomorrow will be significant. We will watch whether there will be a decrease in demand in bond issues that will distort the market. The Biden package will come to the House of Representatives for the last time today, and it is expected to be approved there and signed by Biden. In terms of the inflation effect of 1400 USD expenditure checks and wage supports, the share of expenditures will be at a decisive point. For the Fed on March 17 and beyond, there are options such as change in maturity structure, twist, more asset purchase, fine technical adjustment. Of course, the dose of the intervention will be dictated by how much and how long the inflation will heat up. We will see if a direct approach can be taken. They are likely to avoid major intervention because the permanent rise in inflation is important to them, not the cyclical movement.


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