Analyzing the Latest US CPI Data and its Impact on Fed's Rate Cut Outlook

CIBC: Analyzing the implications of February's US CPI report for the Fed

CIBC discusses the latest US CPI data for February, highlighting that the report, while above consensus, does not necessitate alarm regarding inflation trends. Core CPI increased by 0.4% for the second consecutive month, surpassing consensus predictions of a 0.3% rise. The headline inflation rate aligned with expectations at 0.4%. Year-over-year, headline inflation edged up to 3.2%, with core inflation slightly decreasing to 3.8%.

Key Points:

• Inflation Data Above Consensus: The report revealed a continued upward trend in core CPI, suggesting inflation pressures remain persistent.
• Core Services and Goods: There was a slight deceleration in core services due to reduced shelter costs, though non-housing services remained high. Core goods prices rose for the first time in three months.
• Fed's Rate Cut Outlook: The data dampens immediate prospects for rate cuts by the Fed, especially given the persistence in non-housing services and a rebound in core goods prices.
• Fed's Data-Dependent Approach: CIBC anticipates the Fed to maintain a highly data-dependent stance, with a more conducive environment for easing policy emerging in the latter half of the year.

Conclusion: While February's CPI report suggests ongoing inflationary pressures, particularly in core services and goods, CIBC advises against overreaction. The analysis points towards a gradual labor market rebalancing and decelerating wage growth as factors that could lead to softer service price gains moving forward. Consequently, while immediate rate cuts by the Fed appear less likely, CIBC forecasts a potential shift towards easing policy in the second half of the year, contingent on forthcoming economic data.