US CPI slips in February, core price growth ticks down year-on-year

The cost of living in the US continued to ease last month, roughly by about as much as expected last month.

According to the US Department of Labor, in seasonally adjusted terms the country's Consumer Price Index advanced at a month-on-month pace of 0.4%, as expected.

But negative base effects meant that the annual rate of increase in CPI slipped from 6.4% for January to 6.0% in February.

Economists had anticipated a decline to 6-0-6.1%.

Food prices were up by 0.4% on the month while those of energy declined by 0.6% despite a 1.0% rise in petrol prices.

Core CPI on the other hand advanced by 0.5% in comparison to the month before (consensus: 0.4%), or by 0.452% to be exact, meaning that the year-on-year rate of change ticked lower by a tenth of a percentage point to 6.5% (consensus: 6.4%).

Significantly, at the core level, price gains for shelter - which are expected to start moderating substantially, likely in the first half of 2023 - picked up again and were ahead by 0.8% on the month.

Commenting on the latest US CPI figures, Andrew Hunter, deputy chief US economist at Capital Economics, said: "At face value, the ongoing strength of inflation presents a dilemma for the Fed as it focuses on maintaining financial stability.

"But even if the current crisis ends up being resolved relatively quickly, we suspect the resulting tightening in credit conditions will still do lasting damage to the economy."

In particular, Hunter noted how core CPI rose by 0.5% on the month despite a 2.8% plunge in used auto prices.

Together with increases in prices for clothing and for other core goods prices, it "cast doubt on the idea that core goods inflation will keep falling".

There were also few signs of core services inflation, excluding housing, slowing down, Hunter said.

"Assuming markets stay calm and no more banks fail, we think the Fed will hike by 25bp next week, and will raise their terminal rate forecast by 25-to-50bp," chipped in Ian Shepherdson, chief economist at Pantheon Macroeconomics.

"To be clear, we think further hikes now are unnecessary; the lagged effect of the increases over the past year are enough to push inflation back to target, but Fed officials have been unwilling so far to accept this argument and until last week they appeared set on further hikes.

"Recent events make a strong case for a pause until May, but at this point that would be a pleasant surprise rather than our base case."

For his part, Mickey Levy at Berenberg Capital Markets highlighted the acceleration seen in core services inflation, which he said was consistent with ongoing robust increases in service sector wages and employment costs.

Furthermore, the Berenberg analyst saw upside risks to the outlook for shelter inflation on the basis of January's data for newly signed leases which in turn, he explained, were tightly correlated to conditions in the jobs market and wages.

That, he said, could keep "rent increases uncomfortably high absent a sharper deterioration in labor markets."