REPEAT: MNI 5 Things: US CPI M/M To Stay Positive, But Softer

Repeats Story Initially Transmitted at 20:01 GMT Mar 12/16:01 EST Mar 12

5 Things To Look For In The US CPI Report

By Holly Stokes and Sara Haire

     WASHINGTON (MNI) - When the Consumer Price Index is released Tuesday, the

outlook is for a 0.2% rise for both overall and core CPI, based on an MNI survey

of analysts. If these forecasts are correct, this will push the year-over-year

rate up to 2.3% from 2.1% in January for headline CPI and to 1.9% for core CPI

y/y from 1.8% in January.

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

--UPSIDE RISK TO CORE CPI

     MNI calculations and and survey history suggests that core CPI has a

greater chance of surprising analysts than the overall measure. In the past 10

years, analysts have correctly forecasted headline CPI half of the time,

including the last four February releases - so a small risk for a surprise. In

addition, of the five remaining misses, there were three overestimates and two

underestimates, showing no clear directional risk. Analysts' accuracy on

estimating core CPI is much less certain, despite the near unanimous agreement

on a 0.2% print. In the past 10 years, analysts have underestimated February

five times and only correctly forecasted it three times, giving a clear upside

risk to the median estimate.

--SHAKY RECORD FOR MKTS AND ANALYSTS

     Analysts and markets were both equally surprised when January's CPI report

came in at a strong 0.5% gain. As we edge into another CPI report, it is worth

noting analysts' expectations and how they compare to markets'. In the past

year, analysts and markets have shown no clear tendency to underestimate or

overestimate, but analysts do tend to be relatively more accurate. Markets have

missed nine times in the past year while analysts have missed six times.

Analysts absolute average miss is rounded to 0.1%, while markets sits at 0.2%.

While markets are expecting a 0.3% gain, analysts are forecasting a more mild

0.2% rise. If markets have missed 70% of the time this year, while analysts have

missed 50%, there is a slightly stronger probability that CPI comes in closer to

what analysts are expecting.

--EXPECT STRONG Y/Y CORE CPI 

     January's CPI report surprised to the upside as core CPI came in at 0.3%

month/month and a strong 1.8% year/year. Now, with core CPI poised for another

gain and possible upside surprise, it is likely that the year/year will push up

to 1.9%. This would be the largest gain since April and gives further evidence

that the economy is picking up after last year's stint of soft readings.

However, whether the market will react to a strong print or not is another

question. Last month, the market's reaction to the upside surprise was subdued

because it was released with a downside surprise in retail sales. As markets

continue to worry that consumer spending is teetering after a strong 4Q, it is

possible that February's reading could also be overshadowed by expectations for

retail sales' release on Wednesday.

--ENERGY COULD SURPRISE

     CPI was up in January, with a strong gain that mainly reflected a large

3.0% increase in energy prices in the month. However, for February analysts are

split on what the energy component of CPI will do. As February has been

predictably cold in most of the US, electricity is likely to see a rise, as well

as natural gas; these two categories make up 45% of the CPI energy component.

Despite analysts agreeing these could contribute to the rise in energy this

month, gasoline prices could throw a curveball in the report. AAA reported that

February pump prices were up from January, but when seasonally adjusted would

still translate into a decline following the large 5.7% rise. However, the

change in gas prices and the change in CPI energy m/m has followed the same path

in the past year, so energy could post a notable gain if it follows the trend.

--RISKS TO CORE GOODS

     In recent years, January has posted above trend growth in core goods, with

February also catching some of the upswing - bolstering both its core and

headline CPI print. With this residual seasonality in mind, it is likely that

February core goods will continue the trend and follow January's 0.4% growth

with a softer, albeit still positive, print. However, the apparel and used cars

components of core goods throw in some additional uncertainty. Since February of

2017, apparel prices have hovered in the negative or near flat range, with

January posting a notable surprise of 1.7%. Analysts are uncertain how much of

this gain was due to seasonal noise and what could have been caused by a more

sustainable normalization of cotton prices. Both new and used auto prices also

cast uncertainty on the core goods number, as debates continue to range on

whether hurricane-driven price surges have finally trickled out of the data.

--MNI Washington Bureau; +1 212-800-8517; email: sara.haire@marketnews.com