After January’s disappointing ‘stall’ in the linear demise of inflation, consensus expectations were for a re-acceleration of the YoY decline in headline CPI (from 6.4% to 6.0%), and the actual print came in right on expectations (+0.4% MoM, +6.0% YoY). That is the lowest YoY CPI since Sept 2021…
Services dominated the headline CPI YoY shift with Shelter continuing to be a main driver…
On a MoM basis, Services and Shelter also dominated, with Used Car prices lower (which lags the real shift as Manheim prices have risen for two straight months)…
The index for shelter was the largest contributor to the monthly all items increase, accounting for over 70 percent of the increase, with the indexes for food, recreation, and household furnishings and operations also contributing. The food index increased 0.4 percent over the month with the food at home index rising 0.3 percent. The energy index decreased 0.6 percent over the month as the natural gas and fuel oil indexes both declined.
Core CPI was expected to slow only marginally in February from 5.6% YoY to 5.5% YoY and it did – dropping to its lowest YoY print since Dec 2021…
The index for all items less food and energy rose 0.5 percent in February, after rising 0.4 percent in January.
- The shelter index continued to increase, rising 0.8 percent over the month. The index for rent rose 0.8 percent in February, while the index for owners’ equivalent rent increased 0.7 percent over the month. The index for lodging away from home increased 2.3 percent in February. The shelter index was the dominant factor in the monthly increase in the index for all items less food and energy.
- Among the other indexes that rose in February was the index for recreation, which increased 0.9 percent, and the index for household furnishings and operations which increased 0.8 percent.
- The airline fares index rose 6.4 percent, ending a string of four consecutive declines. The index for motor vehicle insurance, the index for apparel, the index for personal care, and the index for new vehicles also increased in February. In contrast, the index for used cars and trucks fell 2.8 percent in February, continuing a recent downward trend.
- The medical care index fell 0.5 percent in February, after falling 0.4 percent in January.
- The index for physicians’ services continued to decline, falling 0.5 percent after declining 0.1 percent in January. The hospital services index and the prescription drugs index were unchanged in February.
The costs of putting a roof over your head remains a critical factor for The Fed to deal with:
- Feb Rent Inflation 8.76% YoY, up from 8.56% In Jan; highest on record
- Feb Shelter Inflation 8.10% YoY, up from 7.88% in Jan; highest on record
There is some good news… egg prices appear to have peaked…
Increases in Transportation costs outweighed a drop in Medical Care costs…
Crucially, the core inflation measure Powell watches – core services excluding rents – went in the wrong direction. Up 0.5% versus 0.36% in January. The year-on-year rate came down slightly, to 6.15% from 6.22%.
Finally, this is the 23rd straight month where Americans cost of living has outpaced their wage growth with real average hourly earnings down 1.3% YoY…
Obviously the world is a different place after the SVB collapse and bailout, but The Fed still has a job to do.
Before the print, the market had priced in 17bps of hikes for March’s meeting next week
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