- Consumer prices rose 0.4% month-on-month in February, right on expectations. Total CPI was up 1.7% year-on-year in February, up from 1.4% in January.
- Prices at the pump were once again a key upward force in CPI inflation. Gasoline prices rose 6.4% month/month in February (seasonally adjusted), and notably are now higher than they were a year ago, up 1.5%. Food prices had heated up through the pandemic, but rose a modest 0.2% m/m in February, and are up 3.6% versus a year ago.
- Core prices (ex-food and energy), rose for the first time in three months, but only by a modest 0.1% m/m. Core inflation continued to lose steam on a year-on-year basis to 1.3%, down from 1.4% in January.
- Within core categories, the shelter index rose 0.2% m/m – its first reading above a 0.1% in several months. Other areas that posted gains were recreation prices, which bounced back 0.6% m/m, after a matching decline in January, motor vehicle insurance (+0.7% m/m) and medical care (+0.3% m/m). Leaning against these gains, prices fell for airline fares (-5.1% m/m), used cars and trucks (-0.9% m/m), apparel (-0.7% m/m).
- The pandemic has produced some big price moves over the past year. The biggest declines in prices were in airline fares (-25.6% y/y), apparel (-3.6%) and motor vehicle insurance (-2.8%). On the other side of the coin, prices for used cars are up 9.3% y/y
Key Implications
- Inflation drivers were basically the same in February as in January. Normalizing prices at the pump are driving headline inflation higher, while price pressures in the core remain muted. The question is whether the Biden Administration’s American Rescue Plan (see report), which is about to be passed in Congress, will trigger an undesirable acceleration in inflation.
- As discussed in our recent report, inflation will head higher in the months ahead, as prices are compared to the very low levels of spring 2020 at the height of the pandemic shutdowns. After that, the mountain of fiscal and monetary stimulus that has been unleashed to support the economy does present an upside risk to the outlook. However, as Treasury Secretary, Janet Yellen, has pointed out, policymakers are well equipped to deal higher inflation. Fed Chair Powell appears to be singing from the same song sheet, emphasizing that given the millions of jobs lost over the past year, he is more concerned about the full employment side of the Fed’s mandate than accelerating inflation.
