UBS: Monthly CPI Set To Surge In February

UBS see headline inflation surging on a large jump in energy prices, whist core inflation should moderate on softer car prices but many other core categories are expected to accelerate or at least remain strong.

• Core CPI inflation is seen at 0.44% M/M, a little less than the 52 to 60bp range seen over the past four months, led by a SA decline in used car prices plus a notable slowing in new car prices.
• There is little slowing in other core items: “demand remains quite elevated and the surge in rents for new leases, which peaked last summer, continues to gradually flow into the CPI measures of shelter rents”.
• Further, UBS expect strong increases in prices for lodging away from home, transportation services, and medical care services. This could be a sign that wage increases are beginning to pass-through strongly into prices.
• The 0.79% M/M SA surge in the CPI is led by a 6¼% jump in energy goods prices (gasoline and diesel), which account for only 4% of the basket but a quarter of the projected Feb rise, and with further increases in store for March.
• Scanner data suggest at home food prices could have increased in Feb at the joint second fastest monthly rate since 2011.
• The US Economics team forecast for a February NSA CPI level of 283.692 is only 1bp below recent CPI swaps fixings.