March 14, 2023 13:21 GMT
Core CPI Overview: Modestly Stronger Than Expected With Some Offsetting Drivers
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- Core CPI was slightly stronger than expected in February, rising 0.45% M/M (cons 0.4%) after 0.40% in Dec and 0.41% in Jan.
- Core goods (-0.01% M/M after 0.07%) were weighed down by used cars providing one of the main downside surprises of the report relative to broad expectations of at least a pause after three months near -2%, instead falling -2.8%.
- Core goods excluding used cars meanwhile only eased from 0.46% to 0.38% M/M, showing little sign of the immediate feedthrough from the sharp improvement in global supply chains in February.
- Core services were stronger than expected as they accelerated from 0.55 to 0.62% M/M for the highest since the cycle high of 0.77% M/M in September. The key shelter items of OER and primary rents were surprisingly resilient as they accelerated slightly in the face of expectations for a further modest moderation.
- With its increased focus in recent months, the non-housing core service inflation increase from 0.36% to 0.50% M/M (ex OER & primary rents) was eye-catching, clearly moving the wrong way for the Fed with its highest also since Sept. However, a bounce in airfares played a large role here although was perhaps less idiosyncratic than it first appears with lodging away from home also accelerating from 1.2% to 2.3% M/M.
- We wait for early estimates of core PCE but note two specific findings. i) Medical care services (more heavily weighted in PCE than CPI) saw continued weakness at -0.70% M/M with more relevant measures for PCE both easing from January’s pace. ii) However, food services (not in core CPI but included in core PCE) bucked the trend of food at home slowing to its softest pace since Apr’21 and instead held steady at a strong 0.63% M/M after 0.62%.