MNI CPI Preview: Core Services Eyed As Energy Rips

Consensus has headline CPI surging +1.2% M/M in Feb on sharp rises in energy (~12% M/M) and less so food (1% M/M). Core inflation is seen at +0.5% M/M from +0.51% M/M in Feb on a larger dip in used car prices, with potential risk to the downside judging by the survey skew. That would see year-ago inflation rise from 6.4% to 6.6% Y/Y, again likely the peak for the cycle.

• This should come as core goods inflation moderates further but with continued strength in potentially stickier core services after the fastest sequential print since 1992 in Feb.
• There is getting close to 100bps in cumulative hikes priced for the next two FOMC meetings. As with payrolls two weeks ago, an in-line report can still increase hike expectations as it removes a potential stumbling block.
• A large beat could even see talk of a 75bp hike but even St Louis Fed’s Bullard hasn’t broached that yet. On the flip side, it feels like a miss would have to be particularly large to steer away from a 50bp hike for May, but it could easily trim hike expectations further out into 2H 2022, with 220bps out to year-end.
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