Wells Fargo: Core CPI Remains Hot

Wells Fargo note that whilst core CPI inflation no longer appears to be getting worse, it would be a reach to say there was much improvement in February. They look for the FOMC to kick off a series of hikes next week with 25bps.

• The CPI jumped another 0.8% M/M in Feb and although largely as expected, “inflation continues to rage at a pace deeply unsettling for consumers and policymakers alike”.
• “Not only is headline CPI expected to rise further from its current one-year rate of 7.9%, but core inflation probably has one more month to go before it peaks somewhat shy of 7%”.
• The moderation in core goods to the lowest since September was encouraging, and was generally broad-based, but “on an absolute basis price growth for physical items was still high historically”.
• However, core service inflation was the strongest since last spring’s reopening as higher home prices and rents continued to flow through and reopening pressures were also evident.
• Food and energy prices will likely rise significantly in March – if AAA gasoline prices hold at $4.25 for the remainder of March, prices would rise close to 15% sa and add 0.6pps to headline CPI.