SocGen: Softer Core As Auto Prices Stabilize, Apparel Softens

At the very bottom of the consensus range, Societe Generale sees commodities again adding materially to headline, and with more coming ahead, but core should fade on autos and apparel, with some upside risk from shelter.

• SocGen see headline CPI at +0.6% M/M in Feb as energy and food costs add materially, pushing the annual rate up to 7.7% Y/Y, and with recent oil price jumps implying further gains ahead.
• They see less pressure on core at +0.3% M/M, “but this is based on expectations that auto prices are stabilizing and that recent jumps in apparel prices should also soften”.
• “Rents and housing costs, however, are slow moving but present steady upside potential. We assume a 0.4% in shelter and owners’ equivalent rent costs for February which has been the recent pace”.
• Both headline and core price trends are seen as peaking, partly on base effects. “Headline projections are far less certain with the geopolitical backdrop on oil and other commodity prices”.
• “This spring we face seasonal increases in gasoline prices, and there is some chance that the early run-up now that adds to headlines should flatten by spring”. If so, the adjustment could result in a partial reversal of gasoline as a contributor to CPI, even as oil and wholesale gasoline hold steady in the financial markets”.