US Consumer Prices Still Running Hot

Inflation is proving hard to quash. That said, some of February's monthly advance in headline CPI is due to an expected upsurge in energy prices, which gained 2.3% in February. That's the biggest increase since August 2023 and was mostly due to a 3.8% rebound in gas prices after a four-month-long slide. In contrast, food prices leveled off (0.0%). This is the first time they haven't gone up since April 2023.

As in January, the biggest disappointment was sticky core CPI, which strips out food and energy. The month-on-month gain was expected to come in slightly below January's disappointing 0.4%, but instead it remained unchanged. In fact, it turned out to be twice as high as the consensus forecast of 0.3%. However, when we look at today's data more closely (to the second and third decimal places), there was still some slight improvement: Monthly core CPI growth slipped from 0.392% to 0.358%.

It's nevertheless clear that the February increase in core CPI didn't just come from services. After eight consecutive months of declines, goods prices excluding food and energy edged up 0.1%. Among other things, there were price gains in apparel (+0.6%) and used cars and trucks (+0.5%). Some of the rise in the price of goods may have been due to higher shipping costs. But the annual change in the goods component, excluding food and energy, is still negative (-0.3%).

One bright spot is that the price of services other than energy cooled after heating up in January. The monthly change went from 0.7% to 0.5%, which remains high but is still better than it was. The slowdown in owners' equivalent rent (0.4% in February, down from 0.6% in January) is particularly noteworthy. In addition, the price of medical care shed 0.1%. However, airfares climbed once more, posting a monthly gain of 3.6%. All told, despite falling from 5.4% to 5.2%, services inflation excluding energy for the 12 months ending in February was still too high. It will have to slow even more for headline inflation to get closer to the 2% target and stay there over the long-term.