Highlights:
- All items CPI rose 0.2% on a month-over-month basis in February after a 0.5% increase in January. The year-over-year rate ticked up to 2.2% from 2.1%
- Excluding food & energy products, core CPI also increased 0.2% on a month-over-month basis.
- Year-over-year core CPI growth held at 1.8% for a third straight month.
Our Take:
Consumer price growth showed further signs of firming in February. The headline rate continues to be boosted on a year-over-year basis by higher energy prices, which rose 7.7% from a year ago in February. Ex-food & energy prices have also shown signs of firming though. The year-over-year rate of core growth held steady at 1.8% for a third straight month but that rate is still being biased lower by a large drop in telecommunication prices last March. Even a ’trend-like’ month-over-month price increase next month would send the annual core rate up to 2% or above as that big monthly drop a year ago falls out of the year-over-year calculation. Indeed, month-over-month increases have been running closer to 2 1/2% (at an annualized rate) over the last half year on average.
To be sure, there is little evidence that inflation is anywhere close to getting out of control on the upside. More evidence of underlying firming, though, should only further reassure Fed policymakers that the U.S. economy is indeed operating close to if not somewhat beyond long-run capacity constraints even as it continues to grow at a somewhat above-trend pace. That is fully consistent with the view that — barring some unexpected shock — interest rates will continue to grind gradually higher towards long-run ‘neutral’ rates.
