(Kitco News) - The gold market continues to inch higher, driven by safe-haven demand even as inflation pressures eased slightly last month.
The Consumer Price Index (CPI) rose 0.2% last month after January’s 0.5% increase, the U.S. Bureau of Labor Statistics announced on Wednesday. The inflation data was weaker than expected, as economists were looking for a 0.3% increase.
The report said that in the last 12 months to October, headline inflation rose 2.8%, down from last month’s reading of 3.0%. Annual inflation was also softer than expected, as consensus forecasts called for a 2.9% increase.
Core CPI, which strips out volatile food and energy prices, increased 0.4% in February, compared to January’s 0.4% increase. Economists were forecasting a 0.3% increase.
The report said core CPI rose 3.1% over the last 12 months.
The gold market is seeing limited gains in its initial reaction to the inflation data. Spot gold is holding above $2,900, but bullish momentum appears weak. The yellow metal last traded at $2,917.70 an ounce, roughly unchanged on the day.
Although gold is seeing a muted reaction to the inflation data, some analysts have said that it could still support higher prices. A slower rise in consumer prices could give the Federal Reserve room to cut rates sooner than expected as recession fears continue to grow.
The Federal Reserve has stated several times that it is in no hurry to cut interest rates as the U.S. labor market remains relatively healthy and the risk of higher inflation remains elevated.
While headline inflation rose less than expected last month, some economists note that rising consumer prices remain a significant risk for the economy. The report noted that a big part of the decline was due to falling airline fares. The report said that shelter costs continue to increase.
The report also noted that energy prices created a mixed picture for consumers. The gasoline index dropped 1% last month; however, the broader index rose 0.2% over the month as the indexes for electricity and natural gas increased.
The report also highlighted broad-based increases in core consumer prices.
“Indexes that increased over the month include medical care, used cars and trucks, household furnishings and operations, recreation, apparel, and personal care,” the report said.
While higher inflation may keep the Federal Reserve on the sidelines for now, some commodity analysts have said that gold can still find some traction. Higher inflation will lower real yields, reducing the precious metal’s opportunity costs of holding a non-yielding asset.
