If a relatively bland inflation print was desirable for market participants concerned about the possibility of an imminent surge in prices, February’s US CPI report delivered.
The headline gauge rose 0.4% MoM, in line with consensus. At 1.7%, the YoY print also matched expectations.
Concerns are growing that ultra-accommodative monetary policy and extreme fiscal largesse are a combustible combination that could eventually lead to sharply higher consumer prices, leaving the Fed behind the curve.
Of course, the Fed is actively seeking to push inflation higher than target in order to “make up” for past shortfalls. Critics argue that could exacerbate the situation.
Core came in below estimates — i.e., cooler than expected. The MoM print there was just 0.1%. The market was looking for 0.2%. YoY, core prices posted a 1.3% gain, also below estimates and the lowest since June.
“The softer core outcome is likely to be what the market focuses on and it should help to ease some of the bond market anxieties about inflation, but we suspect it will only be a temporary respite,” ING cautioned.
“The gasoline index continued to increase, rising 6.4% in February and accounting for over half of the seasonally adjusted increase in the all items index,” the government said. “The electricity and natural gas indexes also increased, and the energy index rose 3.9% over the month.”
The food index ticked 0.2% higher. The 12-month gain stood at 3.6% last month. The shelter index rose 0.2% (OER up 0.3%). Gains in recreation and medical care were juxtaposed with declines in the cost of air fares, used vehicles, and apparel.
If you’re desperate for signs of hyperinflation, you might point to the 1.8% rise in the fresh fruits index. That was the largest gain in eight years. But Americans don’t eat any fruit. (How much for a Snickers?) The gauge for meat, chicken, fish, and eggs posted a smaller increase in February compared to January.
There was little utility in digging any further into the release. With the exception of shelter and energy (and who really needs that, right?), it didn’t bolster the reflation narrative, let alone give the hyperinflation crowd anything to shout about. Base effects will begin to play a bigger role soon, and PMIs tell us it’s just a matter of time before prices surge.
“Inflation has been gradually rising since Q2 2020, but there will be a step change in March and April with the economy in a very different position to what it was 12 months before,” ING went on to say, in the same note mentioned above. “Headline inflation is set to hit 3% in April as prices in a vibrant, reopened, supply constrained economy contrast starkly with those of 12 months before when the situation looked dire.”
Until then, I guess.