US: February CPI did not show many signs of cooling – Wells Fargo

Data released on Tuesday showed the US Consumer Price Index rose 0.4% in February, as expected, while the annual rate slowed from 6.4% to 6%. Analysts at Wells Fargo argue the report did not show many signs of cooling in consumer inflation and warn there were only a few positive developments in the data.

Headline CPI coming down gradually

“Consumer price inflation did not show many signs of cooling in the February CPI. There were only a few positive developments in the data. Prices at the grocery store rose just 0.3%, the smallest increase since March 2021. Used auto prices continued to come back down to Earth and fell another 2.8% in the month.”

“Prices for food consumed away from home rose 0.6% in a potential sign that inflationary pressures emanating from the tight labor market remain in place. On a year-over-year basis, headline inflation continued to come down amid slower food and energy inflation. Headline CPI has risen 6.0% over the past 12 months, the smallest year-ago change since September 2021.”

“But beyond these pockets of improvement, core CPI inflation remained entrenched at uncomfortably high levels. With core CPI up 0.5% in February, it is rising at an annualized rate of more than 5% whether measured on a 1-month, 3-month or 12-month basis.”

“With more than a week to go until the next FOMC meeting, a 25 bps rate hike is still a distinct possibility if financial stresses ease.”