REPEAT: MNI 5 THINGS: US Core CPI Y/Y To Rise On Base Effects

Repeats Story Initially Transmitted at 18:28 GMT Apr 10/14:28 EST Apr 10

     WASHINGTON (MNI) - Released on Wednesday will be the Consumer Price Index,

and the outlook among analysts is relatively moderate, with the forecast for

overall CPI coming in flat and the core component expected to rise by 0.2%,

causing the year-over-year to jump to 2.1% from 1.8% in February on base

effects. 

     Ahead of the release, we outline five themes for particular attention.

--HISTORY OF OVERESTIMATING HEADLINE AND CORE

     MNI survey history and calculations show a tendency for analysts to

overestimate both headline and core CPI. In the past 10 March reports, analysts

have overestimated six times and only underestimated one time. This trend is

obvious in more recent years, with analysts overestimating March headline data

in each of the last three years. In the past 10 years, March core CPI has also

been overestimated six times and only underestimated once. This presents a clear

downside risk to both the headline and core CPI estimates. 

--DOWNSIDE RISK TO WHISPER NUMBER

     Market participants expect headline CPI to come in stronger than analysts

forecast, with a whisper number at a 0.2% gain. However, the odds of CPI posting

a gain above analysts' consensus are somewhat dampened by the tendency of both

analysts and markets to overestimate headline CPI. In the past year, analysts

have overestimated the figure four times with only two underestimates, while

markets have overestimated the measure six times and underestimated it four

times. A history of overestimating headline CPI, combined with the whisper

number overestimating the first print by an average of 0.23% compared to

analysts' average overestimate of 0.15%, gives a downside risk to market

expectations for a stronger headline number. 

--UNLIMITED DATA PLANS TO GIVE POSITIVE YEAR/YEAR BASE EFFECT

     Despite expectations for core CPI to come in at a relatively soft 0.2%

month/month, the year/year pace is expected to accelerate sharply to 2.1% from

1.8% in February. This would be the first above the Fed's 2.0% target since

February 2017. In March of 2017, free unlimited data was introduced, which

spurred a considerable drag on overall and core inflation in March last year,

but this should translate into a sizeable boost for the year/year now. Even

though there may be a jump in the 12-month, this should not be a sign of an

overheating economy, and just as the Fed discounted the soft inflation from cell

phones last year, they should again consider the underlying cause.

--ENERGY TO DRAG HEADLINE CPIE

     Headline CPI is expected to come in flat month/month in March, with some

analysts even expecting it to decline by 0.1% as seasonally adjusted gasoline

prices drag down the index. In the last 10 years, unadjusted March CPI gasoline

has risen by an average of 6.1% month/month, well above the overall 10 year

average of CPI gasoline across all months rising just 0.1% rise month/month.

Accordingly, seasonal factors adjust for a large gain in gasoline prices for the

month of March. However, analysts worry that with a much more muted rise in this

March's gas prices, the seasonal adjustment will amount to a sharp drag on

headline CPI. In fact, seasonal factors expect such a large gain in March, that

even the unadjusted 15% jump in gasoline in March's PPI report, released

Tuesday, was not enough to keep the seasonally adjusted measure from falling

3.7% and dragging overall energy prices down 2.1%.  However, with the March PPI

report showing a surprise 2.2% gain in food, CPI headline could receive a

cushion from a jump in food prices as well.

--EXPECTATIONS FOR MEAN REVERSION

     Within core CPI, there are a number of categories that are expected to see

mean reversions. Following two months of surprising gains in apparel prices,

there should be a deceleration, especially as March prices typically decelerate.

It is likely that the gains captured in January and February were likely caused

by new seasonal sales patterns not being fully captured by the BLS. Lodging away

from home is expected to rise, but only to mildly offset the decline seen last

month, while rent inflation is likely to pickup. However, these rebounds are

unlikely to offset the weakness seen in other categories.