Entering 2022, there was some optimism that we may have "peaked" in terms of inflation with some seeing the February report as a turning point due to anticipated improvements in terms of shortages and bottlenecks.

However, these hopes have been dashed based on what is happening with energy and food prices over the past month due to the Russian invasion of Ukraine. In a bigger picture sense, it seems that many countries are now uncomfortable that they are reliant on hostile nations for their food and energy needs. This is leading to a pivot to find new sources of food and energy, but this process is inherently inflationary as well.

And, this is the crux of the issue. The Federal Reserve could solve inflation overnight by raising rates high enough to choke off growth, spending, and investment. Of course, this is like burning down your house because you have an insect infestation. The long-term solution is to incentivize production and investment, but the drawback is that this will likely lead to more inflation in the near-term.

So, the February CPI was anticipated to give us a deeper look at inflation. Unfortunately, it seems that the inflationary components aren't falling too much, while food and energy prices keep accelerating higher. But, the most concerning is that inflation is broadening out into other categories like services and rents which increases the odds that inflation is entrenched, and the Fed must take action.

The consumer price index for February rose 7.9% from last year and 0.8% monthly which was in-line with expectations and the highest since January 1982. Excluding food and energy, core inflation came in at 6.4%.

Food and energy prices were two of the biggest contributors, accounting for about 35% of the increase, while there was some relief in auto prices.

Real inflation-adjusted average hourly earnings declined 0.8% in February and 2.6% on an annual basis. Essentially, inflation is outpacing wage gains.

Bond yields soared higher following the report. Due to the Russia-Ukraine crisis, many thought it could lead the Fed to slow-play its tightening. However, the market is now back to expecting 7 hikes in 2022 following these figures. Equities declined following the report but caught a bid later in the session on some positive chatter about a potential ceasefire.