It’s going to be hard to get too jazzed about today’s report. Because it is entirely a pre-Iran-war number, it won’t have any of the energy spike that will make next month’s figure so exciting/alarming. Now, ordinarily I’d say that this will be the last ‘clean’ number without those influences, but this number isn’t in any sense clean because there are still echoes of the shutdown in it. Still, the fun part of those echoes will be in April’s number when the rent figures will have a one month spike as the October OER sample (all zeroes by assumption) drops out of the calculation. And that month will have Iran in it also. So buckle up for the next couple of months.
For February’s figure, though, the expectations were for +0.26% on headline inflation and +0.24% on . Right around 3%, and not representing a return to the Fed’s target, but not too far off – except for the fact that it looked like they were on the upswing even before the Iran thing. Will anyone care?
Now, the US CPI swaps curve does have the influence of the war in it. But I present it here because it’s interesting. It isn’t surprising that it is inverted, with the near-term inflation higher due to energy, but the long end lower? That looks odd. But I’ll circle back to this later as it is actually a good reminder.
The forecasts were pretty good: actual headline CPI was +0.267% while core was +0.216%.
Lodging Away from Home was +1%. This has been recovering from the dip last year but hotel prices are still below the post-COVID “gotta get away” highs. It’s a decent bet that we will see new highs here in 2026.
On Fed policy: given what has happened in March, the February numbers aren’t going to be very meaningful. But the market seems to be misunderstanding the importance of the energy spike, treating it as an inflationary impulse that makes the Fed’s job difficult given weak employment data. That’s wrong. A rise in CPI that is caused by energy is not the sort of inflation the Fed leans against. That’s because energy is mean-reverting, but also very anti-growth. Remember that earlier I noted that the CPI curve was inverted but also the longer tenors were lower than a month ago? That’s probably because the inflation market is pricing a recession (which isn’t disinflationary, but the market believes it is). Anyway, if the Fed tightened into an energy price spike, they’d be making a recession worse. That was a big part of the 1970s Fed errors. The Fed knows about those errors, and so an energy price spike is more likely to produce a Fed ease in context with weak employment data, than a tightening. This isn’t stagflation, if core continues to decline. It’s stag, but headline CPI heading higher is not inflation if core/median remains tame.
(To be sure: I don’t think core and median are going to remain contained and in fact I think they are already starting the process of rolling back to the mid-to-high 3s. The Enduring Investments Inflation Diffusion Index is confidently moving higher.)
Here’s another important implication: given what has happened in March, the February numbers aren’t going to mean much for policy, so people will move on quickly from this especially as they were close to expectations. The bottom line for this report is that February’s number is going to be swiftly forgotten. The next few are going to be very exciting, and not in a good way!
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US CPI Report Offers Little Guidance as Energy Shock Lies Ahead
