Well, what do you know? US inflation cooled considerably in February.
That’s according to Wednesday’s CPI release which, had it looked anything like the prior month’s update, would’ve surely undercut risk sentiment further at a precarious moment for US equities.
Core price growth on the BLS’s measure ran just 0.2% last month (0.227% unrounded), undershooting consensus and offering a reprieve for investors struggling to come to terms with a stagflationary macro backdrop across the world’s largest economy.
On a YoY basis, core price growth ran 3.1%, slower than expected and the coolest since April of 2021.
The headline gauge was similarly benign, rising 0.2% MoM and just 2.8% YoY. The shelter gauge accounted for almost half the monthly headline increase, but at 0.3%, it certainly could’ve been worse, and it was anyway blunted by a sharp drop in airline fares and a decline on the gas index.
This was a decent report. Yes, prices rose for pretty much everything people need and want — furniture, used vehicles, clothes, health care and so on — but grocery prices were flat after a sharp increase in January and the decline on the gas gauge was the first in six months.
Beleaguered US equities should like this release. A lot, actually. Bonds should like it too. The CPI-derived “supercore” measures came in at 0.2%, a sharp deceleration from January’s wholly disconcerting readouts.
The issue, though, is that the outlook’s now so inextricably bound up with Donald Trump’s tariffs and Elon Musk’s job cuts — which is to say with initiatives that are impossible to game out ahead of time, given the ad hoc nature of the implementation — that it’s hard to know how much weight to put on “yesterday”‘s data. This is, to put it bluntly, old news.
With that caveat, I’m the last person who’s going to spin a decent macro release just because it’s not amenable to hyperbolic stagflation headlines. I can write plenty of those “honestly” without having to force the issue with a print that doesn’t fit the mold.
That to say this: Wednesday’s CPI release was incrementally good news, and for now at least, it suggests January’s scorcher was an anomaly, even as underlying price growth remains a full percentage point above the Fed’s target, and too stubborn for policymakers’ liking.
Bottom line: In the absence of a sharp deterioration in the labor market, it’ll take another two CPI reports like this one to make the Fed comfortable resuming rate cuts.
