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First Cut: February CPI restrained by declines in energy

The February Consumer Price Index (CPI) eked out a 0.1% increase month-over-month even as the year-over-year rise of 2.3% remained in line the recent trend. The core CPI — excluding food and energy — was up 0.2% from the prior month and up 2.4% compared to February 2019. Energy prices were down 2.0% from January with gasoline off 3.4%. Food prices were up 0.4% in the month. The BLS said, “Five of the six major grocery store food group indexes increased in February,” and in particular dairy and related products were up a sharp 1.1%.

Shelter costs — which account for about a third of the basket of consumer prices — were up 0.3% in February from January and were up 3.3% compared to a year ago. Rents were up 0.3% from the prior month and Owners’ equivalent rent was up 0.2%.  The strong housing market is likely to keep upward pressure on housing costs. Prices for all items excluding shelter only were flat in February from January, and up 1.9% from February 2019.

There may be a hint of one impact from the outbreak of COVID-19 in the CPI numbers. Prices for airline fares were down 0.3% month-over-month in February. It isn’t unusual for the travel industry to offer discounts to get consumers interested in a mid-winter vacation, but worries about travel in general and in confined spaces in particular may cause the downward direction of airfares to continue until the spread is under control.

There continues to be little or no upward pressure in prices from commodities which were down 0.1% in February from January and up only 1.3% compared to the year-ago month. Services, however, continue to impose firmer gains in prices and were up 0.2% month-over-month and up 3.0% year-over-year.

While Fed policymakers are going to welcome the evidence that consumer price inflation remains tame but within reach of the 2% symmetric target, it isn’t going to be the top of the list for concerns about the outlook for monetary policy when they meet on March 17-18. This is another piece of data that affirms that the US economy was in a “good place” before worries about the risks posed by the spread of COVID-19 began to seriously impact markets and economic behavior.

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