Instant View: February inflation in line with expectations as Iran war overshadows last month's data

NEW YORK, March 11 (Reuters) - U.S. consumer prices rose 2.4% from a year ago in February, data showed, matching economists' expectations.

The Consumer Price Index rose 0.3% last month from January, also matching the expectations of economists polled by Reuters, after rising 0.2% the previous month. The in-line report on Wednesday morning is cast in shadow by the U.S.-Israeli war against Iran, which has driven a large rise in crude-oil prices and sparked investor concern about inflation down the road.

MARKET REACTION:??

STOCKS: U.S. stocks were lower. The Dow Jones Industrial Average was down 1%, the S&P 500 was off 0.5% and the Nasdaq Composite was down 0.3%.

BONDS: U.S. Treasury yields rose after the inflation report. The? yield on benchmark U.S. 10-year notes was last 4.21%, up 7 basis points.

FOREX: The dollar index was up 0.4% at 99.25.

COMMENT:

EUGENE EPSTEIN, HEAD OF TRADING AND STRUCTURED PRODUCTS, MONEYCORP, LINCROFT, NEW JERSEY:

"The picture has changed substantially since this reading was taken, so the relevance is minor. That said, every number matched the survey perfectly. The core CPI actually decreased, as was expected, and everything else stayed the same, as was expected. So really, if we were in another parallel universe, I guess you could say these numbers would be positive: they matched expectations and we are not seeing the CPI increase that everybody was worried about. But this energy shock has completely taken the market by surprise and is spinning everything. Given current events, this release is substantially less important than it used to be. The market is very fixed on Iran."

WASIF LATIF, CHIEF INVESTMENT OFFICER, SARMAYA PARTNERS, PRINCETON, NEW JERSEY:

"The CPI came in line with expectations and shows stabilization. However, this report shows a rearview level and is based on information at the eve of the war. Spiking energy prices will seep into prices and push CPI higher in the coming months. The question is by how much and for how long? The global release of the SPR is not going to be as effective in the long run given its size versus the supply reduction in the market. That's why yields are higher on western sovereign debt, not lower."

TOM GRAFF, CHIEF INVESTMENT OFFICER, FACET, PHOENIX, MARYLAND:

"This CPI release is a relief for the Fed. If we keep seeing weakness from employment, the Fed is going to want to cut. However, as it is, the Fed committee is very divided, with a large block of FOMC members more worried about inflation. More benign CPI and PCE reports would help get the committee on the same page.

"Since this CPI report is from February, there is no impact from the Iran war yet. Obviously, that's coming. For the Fed, if the impact is limited to gas prices, they will be able to ignore it. However, if it bleeds into core inflation, perhaps because shipping through the Strait of Hormuz gums up trade beyond just energy, that would likely force the Fed to hold off on cuts."

TIM HOLLAND, CHIEF INVESTMENT OFFICER, ORION, OMAHA, NEBRASKA:

"According to FactSet, Wall Street was expecting a 2.5% CPI print for February; the slightly better than expected print of 2.4% should be well received by investors and might quiet - at least a bit - the increasingly vocal stagflation chorus on Wall Street.

"While the cooler than expected February CPI print was welcomed, many investors will look past it as it won't reflect the recent spike in oil prices stemming from the conflict with Iran. Said differently, the March CPI print should loom large on Wall Street."

JUAN PEREZ, DIRECTOR OF TRADING, MONEX USA, WASHINGTON:

"With evidence that price growth remains stubborn, it makes sense for the buck to rise naturally in addition to the fact that it benefits from its safe-haven role in the midst of chaos as well as the most necessary way to purchase oil. I feel the buck could be further helped if we get a surprise announcement that leads to a path towards resolution and ceasefire."

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK:

"This is good news in a sense that we're not seeing any acceleration. In fact, on a year-to-year basis, 2.4% is not that far away from the Fed's 2% [target]. So I would say this is a relief.

"Of course, these numbers are subject to what happens with the war, and if the war should continue for a sustained period of time and oil prices stay at these prices or head higher, then we're looking at higher inflation over the next few months."

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN:

"February's inflation numbers were heading in the right direction, but then along came the conflict in the Middle East and now the path is changing. Instead of deflation from energy, we will get inflation. Food prices could show signs of inflation acceleration as the fertilizer market is in chaos.

"The food and energy components of the CPI make up 20% of the consumer basket, but they punch above their weight in shaping consumer perceptions of inflation. The Fed will probably talk about staying on hold and being vigilant in fighting inflation, but monetary policy won't open the Strait of Hormuz, so their tough talk will be mere words."

PADHRAIC GARVEY,?REGIONAL HEAD OF RESEARCH, AMERICAS?AND?HEAD OF GLOBAL RATES AND DEBT STRATEGY, ING, NEW YORK:

"It came in as expected. Given the tariff story we've been dealing with over the past nine months, I think there's a tolerance for CPI to be around 2.5%. This is OK. The thing about this number, however, is that it's very much in the rear-view mirror because it's a February number and there's stuff going on at the moment which puts upward pressure on prices going forward, clearly given the war in Iran."

ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH, FAIRFIELD, CONNECTICUT:

"The report didn't dramatically change my point of view, but it didn't help improve it. If the war wasn't going on and we weren't seeing oil going crazy, I'd look at this report as not all that helpful and slightly negative. Because we do know that oil is going to have a negative impact on consumer prices there's nothing in this report that helps change my mind to be more positive on inflation. It's rising and it's a matter of by how much and for how long."

BRAD CONGER, CHIEF INVESTMENT OFFICER, HIRTLE CALLAGHAN, BRYN MAWR, PENNSYLVANIA:

"Reading too far into today's CPI in most respects amounts to arguing over the dinner menu on the Titanic, since the economy has struck an energy cost iceberg.? In our view, it confirms that underlying inflation is tracking with employment - which is to say, downward trending.? We are adding to our long duration in Treasurys."

CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, NORTHLIGHT ASSET MANAGEMENT, CHARLOTTE, NORTH CAROLINA:

"The good news is that inflation didn't come in higher than expected in this morning's CPI report; however, this is backward-looking data from before the war in Iran began. It is generally assumed - and we agree - that the Fed is going to be on hold for longer now, as they wait to see if inflation expectations rise and become embedded, or if everything will go back to where it was prior to the military operations in the Middle East."

(Reporting by Stephen Culp, Chuck Mikolajczak, Karen Brettell, Sinead Carew, Suzanne McGee, Laura Matthews, Chibuike Oguh; editing by Colin Barr)