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MS: Core Inflation To Peak At 6.5% Y/Y In February

US OUTLOOK/OPINION

Towards the higher end of consensus, Morgan Stanley see core inflation little changed from January’s monthly pace as faster core service inflation offsets a dip in core goods prices on autos.

  • They forecast core CPI inflation of 0.55% M/M in Feb after the 0.58% M/M in Jan, pushing the year-ago rate from 6.0% to 6.5% Y/Y. This “continues to mark the peak year-over-year rate of inflation in our forecast profile”.
  • Core goods prices should remain firm but slow with indications that upside from new and used autos has begun to dissipate.
  • “Core goods ex-used autos should remain firm, consistent with recent import price data that showed continued outsized increases in core imported goods prices”.
  • Core services prices should step up in Feb, “with rent and OER inflation remaining firm, while airfares appear on track for another solid increase that will likely be paired with a large rebound in hotel prices”.
  • Food prices are seen up 0.9% M/M and energy up 4.6% M/M, together lifting headline CPI up 0.87% M/M on and the year-ago rate from 7.5% to 8.0% Y/Y.
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