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Core CPI Services Preview: Non-Housing In Focus Again

US
  • Non-housing core service CPI inflation eased in January by varying extents depending on which measure you use.
  • Core non-rent of shelter service inflation fell from 0.40% to 0.24% M/M but if you only strip out OER and primary rents, non-housing service inflation eased only modestly from 0.39% to 0.36% M/M as a result of strength in hotel prices in January.
  • Morgan Stanley look for this broader non-housing core service measure to ease to 0.14%, in what aside from July’s 0.07% would be the first monthly rate below that consistent 2% annualized inflation since Sep’21. By comparison, BofA forecast an increase to 0.40% M/M.
  • Of course this is CPI and not PCE. With the health insurance category irrelevant for PCE services, we will focus on what happens to other medical care service prices to get a better gauge on underlying service inflation.
  • A core services print with an upside limited to a bounce in airfares and weaker other details would have notably dovish implications.
  • The heavily weighted OER and tenants' rents measures meanwhile are both seen with a further moderation similar to that of January, with an average OER pace closer to 0.6% along with a 'low' 0.7% for primary rents on rounding.

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