Consumer Price Index:Historical Releases/2023 February

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Full Report: https://www.bls.gov/news.release/archives/cpi_03142023.pdf

Publishing date: March 14 2023

Summary

https://www.bls.gov/news.release/archives/cpi_03142023.pdf

CPI came in line with expectations, the markets reacted positivetly to the news, because it could signal that the FED it will not do 50 bps, and that even due the developments of the banking system, that FED could be very close to pausing. At the moment, the probability of a 25bps rate hike in march stands at 73%, but the terminal rate is up to 5.25%.

CPI rose 0.4 percent in February on a seasonally adjusted basis, after increasing 0.5 percent in January. Over the last 12 months, the all items index increased 6.0 percent before seasonal adjustment.

Core CPI rose 0.5 percent in February, after rising 0.4 percent in January. The Y/Y increase was 5.5%

https://www.zerohedge.com/markets/cpi-slows-expected-americans-real-wages-drop-32nd-straight-month

Biggest Contributors:

Weighing of CPI components

The index for shelter was the largest contributor to the monthly all items increase, accounting for over 70 percent of the increase, with the indexes for food, recreation, and household furnishings and operations also contributing.

For Core CPI, the categories which increased in February include shelter, recreation, household furnishings and operations, and airline fares. The index for used cars and trucks and the index for medical care were among those that decreased over the month.

Categories watched by the FED:

• Core goods: 1% YoY (0.0% m/m)
• Core Services: 7.3% YoY (0.6% m/m)

• Shelter: 8.1% YoY (0.8% m/m)

• Services less shelter "super-core": 6.15% YoY (0.5% m/m)

Assessment

February CPI 2023 continues to be driven mostly by:

• Shelter inflation, the index for shelter continues to increase due to the lags in the calculation, shelter is now accounting for most of the increase in CPI (70%)
• Core services less shelter is decreasing but at a very small pace. The high wages and tight labor market could keep them stickier than other components.
• Core goods is mostly flat for the month. Showing signs that CPI decreases from this sector are now stabilizing.

February CPI numbers are still in line for a 25bps rate increase from the FED, according to their plan, but due to the banking developments, there is now a possibility that the FED will not do rate hikes in the next meeting, and pause at the current rates for some months.

CPI expectations

February 2023 CPI is expected to continue on its downward trend, with headline CPI expected to have a bigger decline than core CPI. We think the numbers will still be very high for the FED to fell comfortable to change its plan.

Some developments during the month: (more details: Consumer Price Index)

* Wages are still increasing at a rate of 4.6%, more than January 4.4%. The labor market remains still too tight, having the most effect in services CPI.

* Energy and Food prices remained mostly flat during February.

* Used car prices saw a big increase in February of  4.3%. New car prices decline 1.4% m/m.

* Supply chain pressures have returned to normal in February.

* Housing prices continue to decline m/m, but this will only be reflected later in the year.

Due to the Banking situation unfolding recently, market is now pricing 75% of 25 bps and 25% of no hikes in next the meeting, a terminal rate of 4.75%, and rate cuts around September.

Range:

• CPI: 5.8% - 6.3%
• Core CPI: 5.4% - 5.6%

Escenario	Probability by Magaly
If < 5.8%: ≥ 4% rally	5%
Between 5.8% - 5.9%: 2-3% rally	30%
In line with expectations (6.0% - 6.1%): flat reaction	40%
Between 6.2% - 6.3%: 1-2% drop	20%
if > 6.4%: ≥ 5% drop	5%

Consensus forecast

Variable	Forecast	Previous	Actual	Market Reaction
Core CPI (MoM) (Feb)	0.40%	0.40%	0.5%	1.65%
Core CPI (YoY) ()eb	5.5%	5.60%	5.5%
CPI (YoY) (Feb)	6%	6.40%	6.0%
CPI (MoM) (Feb)	0.40%	0.50%	0.4%

FED Cleveland Forecast

	YoY Change		MoM Change
Month	CPI	Core CPI	CPI	Core CPI
23-Feb	6.21	5.54	0.54	0.45
Mar-23	5.37	5.66	0.27	0.45

Specific institutions forecast

Institution	Forecast
STIFEL	5.80%
UBS	6%
WELLS FARGO	6%
CREDIT SUISSE	6%
HSBC	6%
JP MORGAN	6%
GURGAVIN CAPITAL	6%
MORGAN STANLEY	6%
SCOTIABANK	6%
NOMURA	6%
GOLDMAN SACHS	6.10%
BMO	6.10%
BANK OF AMERICA	6.10%
CIBC	6.10%
TD SECURITIES	6.10%
VISA	6.10%
MEDIAN	6%

Commentary:

Credit Suisse

“We expect core CPI inflation to remain steady at 0.4% MoM in February, causing the YoY reading to tick down to 5.5%. Energy and food prices are likely to moderate, with headline inflation also coming in at 0.4% MoM. A reading in-line with our expectations would be uncomfortably high for the Fed, but still consistent with gradual disinflation this year.”

RBC Economics

“We expect Tuesday’s report to show the YoY measure falling to 5.9% in February compared to 6.4% January (which was the lowest reading since October 2021). Much of that easing has come from lower energy prices and signs that food price growth is past its peak. Inflation pressures across other goods and services has also been edging lower, though stickier than expected in recent months. We expect the February numbers to look better with ‘core’ inflation (which excludes food and energy products) dipping to 5.4% from 5.6% in January. Robust US labour market data indicates strong economic momentum at the start of 2023, and stickier inflation suggests it may take longer to get back to the 2% target. This is bolstering the case for further interest rate hikes from the Fed.”

NBF

“The energy component may have had only a limited effect on the headline index, with prices remaining more or less flat in this segment in the month. Expected gains for shelter, used vehicles and airline fares could still result in a 0.4% monthly increase in headline prices. The core index may have seen a similar rise, which would translate into a one-tenth drop in the annual rate to 5.5%.”

CIBC

“A further increase in prices at the pump and continued pressure in core categories suggest that prices rose by an uncomfortably fast 0.4% in February. Looking at core (ex. food and energy) categories, shelter prices are set to peak imminently as the typical lags with new leases that are resetting at lower rates kick in, but continued pressure in core services outside of shelter, in line with the tight labor market, will keep the Fed on a tightening path. Moreover, the deflation in core goods prices appears to have ended, as supply chains have normalized, and used car prices as measured by industry gauges climbed in February. A consensus-matching core CPI reading will likely be good enough to keep the Fed on track for a 25 bps hike this month.”

CitiBank

“We expect a softer 0.4% MoM increase in headline CPI due to a retracement of utility gas prices in line with falling natural gas prices. Details should reveal continued strength in key services prices, although starting with February data could be the start of an expected slowing in shelter prices which comprise close to 40% of core CPI. Other non-shelter services should be strong overall, although with a continued drag from the medical insurance component in CPI which notably will not be included in PCE inflation. Prices for medical services themselves, however should remain strong, as should prices for recreation services and transportation services, including a 1.5% MoM bounce back in airfares. Rather than services which should remain consistently strong, the pick-up in core CPI relative to the previous two months should come from goods prices. Most notably, we expect recently rising wholesale measures of used car prices to start to feed through to stronger car prices in CPI.”