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US: Consumer prices (February 2008)

Mon, Mar 17 2008, 10:04 GMT
by Marcial Nava

BBVA Bancomer

• • Headline CPI remained unaltered in February, favored by a 0.5% decrease in energy prices
  

• • Core prices were also unchanged, core services inflation softened while core commodity prices fell
  

• • We expect core CPI inflation to ease in the next months, as economic growth decelerate

Core CPI flattened in February, following a 0.3% increase in the previous month. On a year-over-year basis, core inflation eased to 2.3% (from 2.5% in January), similar to the average of 2007. Core CPI inflation rose by a three-month annualized rate of 2.3% from 2.5% in November 2007.

Core inflation may be experience the effects of a slower demand

Core services inflation (72% of total core inflation) eased to 0.1 % from 0.4% in January; among its main contributors, the owners’ equivalent rent index (OER) softened to 0.1% from 0.3% in January. OER inflation was 2.7% y-o-y, the lowest since February 2007. As we noted in previous releases, housing oversupply is helping to reduce pressures on OER and shelter. This trend may continue as suggested by the current situation of the housing market. Both, transportation and medical services inflation moderated to 0.1% from 0.5 and 0.6% respectively in January. Prices increases in the core services group were partially compensated by a 1.2% decline in prices of lodging away from home.

Core commodity prices (28.2% of core CPI) decreased 0.1% (from 0.2% gain in January) as prices of durable goods declined 0.2%. On a year-overyear basis, core commodities prices were unchanged, following a gain of 0.1% in January, which was the highest rate since October 2006.

Headline inflation remained unchanged

Headline consumer prices showed no change in February. A 0.5% drop in energy prices –caused by a 2% drop in gasoline prices- was offset by a 0.4% increase in food prices. Despite this good news on the energy side, pressures are likely to continue going forward. The average price of gasoline edged up 4.7% in March, reaching an average of $3.21 dollars per gallon.

We expect core inflation to recede favored by slower economic growth; however, upside risks from energy and food persist

February CPI readings suggest that core inflation probably reached a peak early in this year. We expect it to slow down in the coming months as the rate of resources utilization diminish. In the near-term, stubbornly high energy and food prices continue to be risky; however, they are likely to reduce its pace in tandem with the economic cycle.

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Published on  Mon, Mar 17 2008, 10:13 GMT