The Consumer Price Index (CPI) rose 0.4% month-on-month (m/m) in February, in line with the consensus forecast. On a twelve-month basis, CPI inched up to 3.2% (from 3.1% in January).
- Energy prices rose 2.3% m/m, largely driven by an uptick in gasoline prices (+3.8% m/m). Conversely, food prices were flat on the month.
Excluding food & energy, core prices rose 0.4% m/m, matching January’s gain and coming in a tick above the consensus forecast. The twelve-month change fell 0.1 percentage points to 3.8%.
Prices for core services rose 0.5% m/m – a deceleration from last month’s gain of 0.7%. The pullback was related to some easing in both shelter costs (0.4% m/m from 0.6% m/m in January) and non-housing services (up 0.5% m/m from 0.8% m/m in January). However, the three-and-six-month annualized rates of change on non-housing services remain hot at 6.4% and 5.8%, respectively.
Core goods prices unexpectedly ticked higher last month, rising 0.1% m/m. Used vehicle prices (+0.5% m/m) and apparel (+0.6% m/m) both rebounded after having recorded declines in months’ prior.
Key Implications
That makes two consecutive months of stronger than expected readings on core inflation. The upward surprise was the result of a modest gain in goods prices – snapping eight prior months of declines – and a still hot reading on non-housing service inflation. As a result, both the three-and-six month annualized readings on core ticked higher in February, rising to 4.2% (from 4.0%) and 3.9% (from 3.6%), respectively.
For a Fed that has become increasingly data dependent, this morning’s numbers are unlikely to give policymakers much further conviction that inflation remains on a sustained downward path to 2%. With the economy still strong, Fed officials can afford to keep rates elevated into the summer and continue to wait for further signs of cooling on the inflation front before dialing back the policy rate.
