Underlying US consumer prices increased more than expected in data released on Tuesday, again imperiling the best laid plans of mice, men and doves alike.
The core CPI gauge rose 0.4% MoM in February, the BLS said. I should note, up front, that the unrounded print was 0.35842%. If you’re the glass half-full type, you might suggest that doesn’t really count as an upside surprise. Economists were looking for a 0.3% increase.
Spin aside, we now have consecutive 0.4% (rounded) monthly increases on the core index. We need sub-0.2% readings if we’re truly aiming for price stability as (arbitrarily) defined by the technocrats who set the price of money. The YoY pace for underlying price growth in February was 3.8%, above estimates.
The headline gauge was likewise warm, rising 0.4% from January and 3.2% YoY. The latter reading matched the highest estimate from 51 economists.
On the bright side, the food gauges were essentially unchanged from January, and the electricity index posted it smallest month-to-month increase since August. But that was where the good news stopped.
The energy gauge rose the most in six months as gas prices jumped. Shelter and gas were responsible for 60% of the all-items increase. OER, a source of intense speculation following rampant confusion in January, rose 0.43965%. That was cooler than the prior month’s disconcerting 0.56076% increase, but nevertheless too high.
Macro watchers were focused on the spread between OER and the rent of primary residence series. In February, it was the latter’s turn to leap. At 0.46299%, the monthly pace outstripped the OER increase, not only closing the spread (which ballooned in January to the highest since 1995), but in fact flipping it negative.
On a YoY basis, OER, rent of primary residence and the shelter gauge are all still coming down but remain uncomfortably high at between 5.7% and 6%.
Elsewhere, the apparel gauge rose the most in a year, transportation services the most since August and used car prices increased from January.
Excluding shelter, core services inflation was 0.50% MoM, down from January’s 0.70% pace. The “core ex-OER/rent” print was 0.47%, down from 0.85%. I suppose you can call those “marked improvements,” but they’re hardly consistent with anybody’s definition of ideal.
Coming quickly full circle, the unrounded core print wasn’t a disaster, but if I’m being honest, I can’t see how this report points to price stability, let alone rate cuts. It’s a bad report. Not terrible considering the circumstances. But certainly not good.
If you’re inclined to call me an alarmist (as some did last month, when I described the CPI release as “horrendous”), I can assure you: “Calmer than you are.”
Oer tends to lag in both directions and the way rent is calculated does as well. Insurance costs do too. These are areas that should slow down as the year progresses. The data does not suggest the necessity of cutting in March. However, as priya misra opines cuts are to normalize rates, not necessarily to stimulate or react to today’s latest print. The Fed got burned with transitory, so they will be slow to cut. Hopefully they don’t sleepwalk us into an unnecessary slowdown. The longer they wait, the faster and harder they will need to cut rates.
What if cutting rates does nothing … an illusion gesture to placate the disgruntled- we here in H’s salon have come to a somewhat common understanding of FED perceived capability vs reality, no?
Cuts now may act as insurance. Inflation seems to be slowly coming down. Doing nothing by implication suggests higher real rates. You may be right about the lack of high sensitivity to rate cuts. To me that argues more strongly not less, for rate cuts if that is the case.
FWIW, agreed.
If rates don’t matter, you can as well keep them low… 🙂
My own take is that, given cash buffers and savings, rates are less effective this time around – though (C)RE and regional banks are still suffering for real.
It’d be interesting if the government could try and lean on housing/service inflation component… but NIMBY would not like that…
RIA isn’t taking into account the neutral rate and the very real possibility that it’s as much as 200bps higher than the long run dot (which might anyway shift up). Read the Weekly: https://heisenbergreport.com/hr-weekly/
Which, incidentally, explains why he/she’s been calling for a recession for at least a year and a half. If your neutral rate estimate’s too low, you’d be inclined to think policy’s more restrictive than it actually is, which’ll lead you to forecast a recession that never comes.
Disappointing report but how much of the upside surprise is due to tough YoY comps? I’m not clever enough to do the math.
Apparently you are the only one who gives a sh*t about the rules, H!
well, this is not Vietnam.