Source: Economics Group of Wells Fargo Bank, N.A.
Summary
The February consumer price data came in a touch stronger than expected. The headline CPI increased 0.4% in the month, led by higher gasoline prices (+3.8%). Excluding food and energy prices, core inflation also registered 0.4%. However, the unrounded 0.36% bump in core CPI was not too far off our forecast for a 0.30% gain. Furthermore, core price growth was flattered by bigger than expected increases in volatile components such as used autos and airfares. Housing inflation cooled as owners’ equivalent rent increased 0.4%, a step down from the eye-catching 0.6% jump in January.
In our view, the details of today’s CPI report generally were encouraging. We expect core goods deflation to return in the coming months amid improved supply chains and less supportive seasonal factors. The much-anticipated slowdown in primary shelter inflation is ongoing. A cooling jobs market has brought about slower labor cost growth, and the widespread easing in this month’s “super core” suggests services inflation may not be as sticky as some feared following last month’s CPI report
That said, we doubt today’s report fills the FOMC with the confidence it needs to begin cutting rates. The core CPI has risen at 4.2% annualized rate over the past three months, which is a bit higher than the 3.8% increase in core prices over the past 12 months.