February Inflation - Generally As Expected

Year-over-year, inflation rose 3.2% in February, up 0.1% compared to January and 0.1% ahead of expectations.  Month-over-month, prices increased +0.4%, up 0.1% compared to January and consistent with expectations.  While inflation has declined substantially from a 40-year high of 9.1% in June 2022, today’s report reinforces the Fed’s cautious approach to cutting interest rates as a still-strong labor market continues to drive consumer spending and broader economic growth.  While there is little chance that policymakers will adjust rates (in either direction) in conjunction with the March meeting, we are looking forward to an update on the Fed’s plans for quantitative tightening and the committee will deliver an updated summary of economic projections which details forward expectations for GDP growth, inflation, and unemployment and includes an updated dot plot highlighting committee members expectations for the forward path of policy rates.  The last set of projections, provided in December, indicated expectations for three rate cuts in 2024, while investors are currently pricing in three to four cuts this year.

• Consumer prices (CPI) increased 3.2% year-over-year.  In February, the consumer price index (CPI) increased 3.2%, accelerating slightly from 3.1% in January and 0.1% ahead of expectations.  Transportation services (+9.9%) and shelter costs (+5.7%) were key contributors to the overall increase, more than offsetting declines in energy (-1.9%) and used vehicles (-1.8%).  We continue to keep a close eye on shelter costs, which represent nearly one third of the consumer price index and tend to impact the index with a lag.  At +5.7% year-over-year, shelter costs decelerated from +6.0% in January and a peak of 8.2% in March 2023.  Core CPI (excludes food and energy) increased 3.8% year-over-year, down from 3.9% in December.
• Consumer prices (CPI) increased 0.4% month-over-month.  In February, consumer price levels increased 0.4%, up from 0.3% in January.  Expectations ranged from +0.3% to +0.5% with a median of +0.4%.  Shelter costs increased 0.4% for the month while energy prices rose 2.3%.  Core CPI (excludes food and energy) also increased 0.4% month-over-month, consistent with the prior month and slightly above expectations of +0.3%.