| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| CPI - M/M | 0.4% | 0.2% to 0.5% | 0.4% | 0.5% |
| CPI - Y/Y | 6.0% | 5.9% to 6.2% | 6.0% | 6.4% |
| Ex-Food & Energy- M/M | 0.4% | 0.3% to 0.5% | 0.5% | 0.4% |
| Ex-Food & Energy- Y/Y | 5.5% | 5.3% to 5.5% | 5.5% | 5.6% |
Highlights
The CPI is up 0.4 percent in February from January and up 6.0 percent year-over-year. These readings match the consensus in an Econoday survey. The core CPI is up 0.5 percent month-over-month and up 5.5 percent from February 2022. The month-over-month rise is a tad above the 0.4 percent consensus in an Econoday survey, while the year-over-year increase is the same as the consensus forecast.
The monthly gain reflects an increase of 0.2 percent in food and beverages in February and up 9.2 percent year-over-year. Overall energy costs are down 0.6 percent from the prior month and up 5.2 percent compared to a year ago. However, it is notable for household budgets that gasoline prices rose 1.0 percent in February from January, but are down 2.0 percent year-over-year.
Increases in shelter costs have not abated. Shelter which accounts for about 1/3 of the total CPI rose 0.8 percent in February from January and is up 8.1 percent compared to a year ago. This is higher than the up 7.9 percent year-over-year in January. The CPI excluding food, energy, and shelter is up 0.2 percent in February from the prior month and up 3.7 percent year-over-year.
While the story is one of overall improvement in consumer price inflation, the increases remain well above the Fed's 2 percent flexible average inflation target. Importantly, services less rent of shelter are up 0.1 percent in February from January and up 6.9 percent year-over-year. Both are signs of slower increases in the non-housing services sector which has been resistant to rising interest rates. Services overall are up 0.5 percent in February from January, but are trending slightly shower in the month-over-month readings. However, the year-over-year increase of 7.6 percent in February is the same as January.
Fed policymakers are going to take this into account when determining the next steps in monetary policy at the March 21-22 FOMC meeting. The numbers will likely be interpreted as more work to be done to bring inflation down, and keep the outlook hawkish.
The monthly gain reflects an increase of 0.2 percent in food and beverages in February and up 9.2 percent year-over-year. Overall energy costs are down 0.6 percent from the prior month and up 5.2 percent compared to a year ago. However, it is notable for household budgets that gasoline prices rose 1.0 percent in February from January, but are down 2.0 percent year-over-year.
Increases in shelter costs have not abated. Shelter which accounts for about 1/3 of the total CPI rose 0.8 percent in February from January and is up 8.1 percent compared to a year ago. This is higher than the up 7.9 percent year-over-year in January. The CPI excluding food, energy, and shelter is up 0.2 percent in February from the prior month and up 3.7 percent year-over-year.
While the story is one of overall improvement in consumer price inflation, the increases remain well above the Fed's 2 percent flexible average inflation target. Importantly, services less rent of shelter are up 0.1 percent in February from January and up 6.9 percent year-over-year. Both are signs of slower increases in the non-housing services sector which has been resistant to rising interest rates. Services overall are up 0.5 percent in February from January, but are trending slightly shower in the month-over-month readings. However, the year-over-year increase of 7.6 percent in February is the same as January.
Fed policymakers are going to take this into account when determining the next steps in monetary policy at the March 21-22 FOMC meeting. The numbers will likely be interpreted as more work to be done to bring inflation down, and keep the outlook hawkish.
Market Consensus Before Announcement
Core prices in February are expected to hold steady at an elevated 0.4 percent monthly gain with overall prices also expected to rise 0.4 percent after January's 0.5 percent rise. Annual rates, which in January were 6.4 percent overall and 5.6 percent for the core, are expected at 6.0 and 5.5 percent.
Definition
The CPI is a measure of the change in the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation for the consumer. Annual inflation is also closely watched.
The consumer price index is available nationally by expenditure category and by commodity and service group for all urban consumers (CPI-U) and wage earners (CPI-W). All urban consumers are a more inclusive group. The CPI-U is the more widely quoted of the two, although cost-of-living contracts for unions and Social Security benefits are usually tied to the CPI-W, because it has a longer history. Monthly variations between the two are slight.
The CPI is also available by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for many metropolitan areas. The regional and city CPIs are often used in local contracts.
The Bureau of Labor Statistics also produces a chain-weighted index called the Chained CPI. This measures a variable basket of goods and services whereas the regular CPI-U and CPI-W measure a fixed basket of goods and services. The Chained CPI is similar to the personal consumption expenditure price index that is closely monitored by the Federal Reserve Board.
The consumer price index is available nationally by expenditure category and by commodity and service group for all urban consumers (CPI-U) and wage earners (CPI-W). All urban consumers are a more inclusive group. The CPI-U is the more widely quoted of the two, although cost-of-living contracts for unions and Social Security benefits are usually tied to the CPI-W, because it has a longer history. Monthly variations between the two are slight.
The CPI is also available by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for many metropolitan areas. The regional and city CPIs are often used in local contracts.
The Bureau of Labor Statistics also produces a chain-weighted index called the Chained CPI. This measures a variable basket of goods and services whereas the regular CPI-U and CPI-W measure a fixed basket of goods and services. The Chained CPI is similar to the personal consumption expenditure price index that is closely monitored by the Federal Reserve Board.
Description
The consumer price index is the most widely followed monthly indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets- and your investments.
If someone borrows $100 dollars from you today and promises to repay it in one year with interest, how much interest should you charge? The answer depends largely on inflation as you know the $100 will not be able to buy the same amount of goods and services a year from now. The CPI tells us that prices rose 4.2 percent in the U.S. over 2007. To recoup your purchasing power, you would have to charge 4.2 percent interest. You might want to add one or two percentage points to cover default and other risks, but inflation remains the key factor behind the interest rate you charge.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets- and your investments.
If someone borrows $100 dollars from you today and promises to repay it in one year with interest, how much interest should you charge? The answer depends largely on inflation as you know the $100 will not be able to buy the same amount of goods and services a year from now. The CPI tells us that prices rose 4.2 percent in the U.S. over 2007. To recoup your purchasing power, you would have to charge 4.2 percent interest. You might want to add one or two percentage points to cover default and other risks, but inflation remains the key factor behind the interest rate you charge.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
