US Feb Core CPI Slows Sequentially and Surprises to the Downside...

... though the Fed is in No Rush to Cut Again as it Awaits 'Greater Clarity'

The US Feb Core CPI surprised to the downside, slowing sequentially from 0.45% to 0.23% m/m sa (Bloomberg Consensus: 0.3%).

As such, the y/y rate slowed further from 3.3% to 3.1% (Cons: 3.2%), its lowest since Apr 2021, while the 3m change also eased but remained elevated (3.6% saar).

The sequential slowdown was driven by both Core Goods (0.22% m/m sa vs 0.28% in Jan) and - importantly - Core Services (0.25% m/m vs 0.51% in Jan).

This meant Core Goods CPI stabilised at -0.1% y/y, while Core Services inflation continued to moderate, dropping -0.2pp to 4.1% y/y, its lowest since Dec 2021.

Interestingly, our translation of the US CPI release into the US Core Goods PCE deflator was less favourable: pointing to another 0.4% m/m increase in Feb.

As the Core Goods PCE deflator is mainly determined by US CPI series, we have to wait for tomorrow’s US PPI for a more complete assessment on the US Core PCE deflator, given the higher importance of the PPI to the PCE Core Services deflator.

What we do know is that the Core Services PCE will need to increase by less than 0.20% m/m in order for the Core PCE to slow sequentially from Jan’s 0.3% m/m pace to a rounded 0.2% m/m in Feb.

Overall, whilst the US Feb CPI was a more favourable outcome, the Fed seems likely to remain on hold for the next couple of meetings at least, as it maintains a watchful eye on inflation risks from Trump’s tariffs as well as rising risks to growth.

For now, last Friday’s payrolls suggests that the labour market remains fairly resilient…

… and as Fed Chair Powell recognised late last week:

- “While there have been recent developments in some of these areas [trade, taxes, govt spending, immigration, regulation], especially trade policy, uncertainty around the changes and their likely effects remains high.”

- “As we parse the incoming information, we are focused on separating the signal from the noise as the outlook evolves.”

- “Despite elevated levels of uncertainty, the US economy continues to be in a good place.”

- “We do not need to be in a hurry, and are well positioned to wait for greater clarity.”