- US core CPI was a touch weaker than expected, but still trending too warm
- The trend and details will keep the FOMC focused on inflation risk
- US Treasury yields retained the day’s rise
- US CPI / core CPI, m/m %, February, SA:
- Actual: 0.22 / 0.23
- Scotia: 0.3 / 0.3
- Consensus: 0.3 / 0.3
- Prior: 0.47 / 0.45
US core CPI inflation landed at a rounded-down 0.2% m/m SA which was a touch beneath expectations. That didn’t matter one bit to US rates as the two-year yield retained the rising pattern into the release—and upped it a touch after the release. The details mattered more than the headline and markets were likely pricing something even weaker.
As for the FOMC, they’ll smooth the data and the smoothed pattern remains too warm for their liking. The 2.7% m/m SAAR rise in core CPI (chart 1) and the three-month moving average that is running at 3.6% m/m SAAR (chart 2) remain too hot for the FOMC. The moving average is influenced by the massive spike in January, but even removing that has the December and February prints averaging 2.7% m/m SAAR. Inflation risk remains alive.
Key among the details is that underlying core services inflation that excludes housing and energy services remained warm at 2.7% m/m SAAR (chart 3). After the explosive gain in January when core services CPI was up 9.5% m/m SAAR, the market may have been hoping for more weakness in February’s core services inflation but that didn’t happen. Core goods inflation also remains too warm and trending that way (chart 4).
After three years in a row of hot February effects on seasonally unadjusted prices that may have reflected post-pandemic distortions and altered company pricing models, this February broke the pattern (chart 5). And yet this February brought out an unusually strong core CPI seasonal adjustment factor (chart 6).
Charts 7–20 break down parts of the basket. Charts 21–22 provide y/y and contributions to y/y inflation by component while charts 23–24 do likewise for the month-over-month contributions. Also please see the accompanying detailed table.
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