U.S. inflation remains under control, according to a Labor Department report published on Wednesday.
The Consumer Price Index, a measure of the U.S. cost of living, rose less than expected in February as prices of used vehicles, transportation services and clothing declined from a month earlier, indicating that broader inflation remained tame.
The CPI rose 0.4% from January and 1.7% from a year earlier.
Meanwhile, the core CPI, which excludes hard-to-predict food and energy costs, rose 0.1% from a month earlier and 1.3% year over year.
The February CPI numbers are in sharp contrast with the January Producer Price Index numbers released last month.
PPI, a measure of the average change over time in the selling prices received by domestic producers for their output, increased 1.3% in January and 1.7% on a year-over-year basis. It was a big jump from 0.8% in December and a big turnaround from last summer, when PPI was hovering around negative territory.
Those numbers pushed Treasury yields higher and equities lower, as higher inflation reignited fears that the Federal Reserve will end monetary easing. The tech-heavy Nasdaq lost more than 5% before rebounding after Fed Chairman Jerome Powell reassured the market that there would be no change in the central bank's policy.
Wall Street has been closely following the Fed's actions as the central bank has broadened its role in financial markets. Monetary easing isn't confined to traditional cuts in short-term rates to help the economy recover from short and shallow contractions. It extends to reductions in long-term interest rates to help the economy avoid a prolonged stagnation. They do that by buying long-term securities like Treasury bonds and mortgages.
The picture was much different on Wall Street this time around, as the tame CPI news out of the Labor Department confirmed that inflation remains under control, allowing the Fed to keep monetary easing intact even as the economy recovers.
In early morning trading, the benchmark 10-year U.S. Treasury yield was at 1.54%, down 0.12% from yesterday's close. The Dow Jones, S&P500 and Nasdaq were all trading higher, adding to Tuesday's significant gains.
While it's still unclear whether CPI will eventually catch up with PPI or the other way around, one thing is clear: Wall Street will keep a close eye on both numbers as the economy continues to recover.
Disclosure: No positions.
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