February Inflation - Not Out of The Woods Yet

Consumer prices are 7.9% higher than they were a year ago – in line with forecasts and marking a fresh 40-year high. This data suggests inflation woes were intensifying even before Russia’s Ukraine invasion sparked a dramatic increase in commodity prices. Most economists were expecting February to mark the peak of YoY price increases, with relief owing to increasingly tougher prior-year comparisons, normalizing demand for goods and easing supply chain challenges. Clearly the narrative has evolved, and the Russia/Ukraine conflict makes even higher inflation prints a near certainty in coming months. In response, the Federal reserve is set to begin a cycle of rate increases next week. As discussed in Tuesday’s research meeting, geopolitical uncertainty adds a thick layer of complexity to a traditional business cycle framework. The central bank wants to implement policies that will combat mounting price pressures, but will proceed cautiously to (hopefully) avoid adding uncertainty to an already uncertain time. On the one hand, policymakers could accelerate rate increases this year if energy price shocks drive higher and more persistent inflation. On the other hand, they may be disinclined to do so if a rapid declines in consumer sentiment and demand begin to weigh on growth.

Consumer prices (CPI) increased 7.9% year-over-year, as expected. In February, the consumer price index (CPI) increased 7.9% compared to the same period a year ago. Expectations ranged from 7.6% to 8.2% with a median of 7.9%. Core CPI (excludes food and energy) increased 6.4% year-over-year. While price increases were broad-based, Energy costs (+26%) and new and used vehicles (+12% and +41%) were among the larger contributors to the year-over-year change.
Consumer prices (CPI) increased 0.8% month-over-month. In February, consumer prices as measured by CPI increased 0.8% compared to January. Expectations ranged from 0.5% to 1.0% with a median of 0.8%. Energy costs (+3.5%), including gasoline (+6.6%) and fuel oil (+7.7%) were among the largest contributors, while used car and truck prices actually cooled slightly (-0.2%) in the month.