MNI US Inflation Insight: Price Pressures Remain Elevated

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EXECUTIVE SUMMARY

• Core CPI moderately undershot expectations in February with 0.23% M/M (unrounded median 0.27) following its much stronger than expected 0.45% in January.
• However, much of the downward surprise was driven by non-PCE relevant categories with airfares (-4% vs 1% expected) and vehicle insurance (0.3% vs 1% expected).
• Core PPI metrics then also came in softer than expected but, importantly for the short-term market reaction, saw details that helped confirm and if not slightly firm further the readthrough to the Fed’s preferred core PCE.
• Analysts estimates track circa 0.32/0.33% M/M for core PCE, an acceleration from the 0.285% in January at what would technically be its highest in eleven months.
• This should see both three- and six-month run rates accelerate notably, from 2.4% to 3.3% and from 2.6% to 3.0% respectively for highs since April and June.
• Fed Funds futures at one point priced just 67bp of cuts for 2025 vs 71bp seen prior to CPI having sold off into the release, but are currently back to 75bp of cuts as equities sliding on US policy induced growth concerns have outweighed the firmer core PCE tracking. A next 25bp Fed cut is seen coming in June.