US CPI rises as expected in February, despite surge in energy prices

The cost of living in the US increased as expected last month, despite a surge in energy prices, but nevertheless climbed at their quickest pace for 40 years.

And economists' forecasts appeared to be a bit mixed, although some were expecting consumer prices to start receding rapidly starting from April.

According to the Department of Labor, in seasonally adjusted terms, the Consumer Price Index jumped at a month-on-month pace of 0.8%, pushing the annual rate of increase four tenths of a percentage point higher to 7.9%.

Core CPI meanwhile, which excludes food and energy prices, increased by 0.5% on the month and 6.4% year-on-year.

Increases in both headline and core CPI were in-line with economists' forecasts.

Compared with December, food and energy prices rose by 0.8% and 3.5%, respectively, with the latter up by 25.6% in annual terms.

New vehicle prices meanwhile were up by 0.3%, those of apparel by 0.7% and those of shelter by 0.5%.

However, at the core level, it was primary and owners' equivalent rent, which combined jumped by 0.5%, that boosted prices by the most.

"A further sustained acceleration in rents would be a real problem, but our medium-term model, driven by home prices and wages, among other factors, suggests this is unlikely," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Combined, primary and owners' equivalent rent accounted for 41% of core CPI, he said.

Used vehicle prices fell by 0.2%.

Looking ahead, Shepherdson was expecting the headline annual rate of CPI to peak in March at around 8.2-8.4%, before falling to 5.5% in September.

Core CPI was seen peaking at 6.5-6.6% before retreating to just over 4.0% by September.

Mickey Levy at Berenberg Capital Markets appeared to be less sanguine, telling clients: "While February’s CPI print was largely in line with consensus expectations, inflationary risks are tilted to the upside.

"Russia’s invasion of Ukraine, the two nations’ roles as key commodity producers and exporters and the litany of sanctions imposed on Russian companies and financial entities, has contributed to surging energy, metal, and agricultural commodity prices – which are likely to drive headline inflation even higher in the near term."