CPI: Lower But Watch Shelter Prices

Bottom Line: Consumer inflation was a touch slower than expected in February. On a trend basis inflation pressures continue to ease slightly. The three-month annualized average for core is now 2.14%, below the six-month rate of 2.26% but slightly above the 12-month pace of 2.08%. Overall, price pressures are modest with very little volatility. Looking through core components, Owner's Equivalent Rent (the largest metric used to gauge the cost of shelter) was up 0.35% on the month, now 3.63% annualized over the last three months vs. 3.22% over the last six months. This suggests some acceleration in trend, which is somewhat surprising and indicates to us that core CPI should be stable to slightly higher over the next few months as some other categories like transportation and auto prices likely stabilize and become less of a drag on the overall core index. The CPI ROSE by 0.2% in February, compared with market expectations for an increase of 0.2%.

• Food prices increased by 0.41% while energy prices rose by 0.4%.
• Prices for gasoline rose by 1.5% while prices for fuel oil increased by 1.6%, prices for electricity slipped by 0.3%, and prices for natural gas fell by 2.4%.
• Energy prices are now 5.1% BELOW their year ago level.

Overall consumer prices are now 1.5% ABOVE their year ago level; in February 2018, consumer prices were 2.2% ABOVE their year ago level. The Core CPI ROSE by 0.1%, compared with market expectations for an increase of 0.2%.

• Prices for commodities excluding food and energy commodities fell by 0.2%.
• Gains in tobacco (+0.5%), apparel (+0.3%), were offset by declines in medical care (-1.0%), used cars & trucks (-0.7%).
• Prices for services excluding energy services rose 0.2% with slight increase in shelter (+0.3%), owner's equivalent rent (+0.3%), and (+-1.0%).

Core consumer prices are now 2.1% ABOVE their year ago level; in February 2018, consumer prices were 1.8% ABOVE their year ago level.