Headline Inflation Drops, Core Inflation Essentially Unchanged

The Bureau of Labor Statistics released the latest CPI data this morning. Year-over-year unadjusted Headline CPI came in at 1.13%, which the BLS rounds to 1.1%, down from 1.58% last month. Year-over-year Core CPI (ex Food and Energy) came in at 1.57% (rounded to 1.6%), essentially unchanged from last month's 1.62%.

Here is the introduction from the BLS summary, which leads with the seasonally adjusted data monthly data:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in February on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.1 percent before seasonal adjustment. 

An increase in the food index accounted for more than half of the all items increase in February. The food index rose 0.4 percent in February, driven by a 0.5 percent increase in the index for food at home, with four of the six major grocery store food group indexes increasing. The energy index declined, with a decrease in the gasoline index more than offsetting sharp increases in the fuel oil and natural gas indexes. 

The index for all items less food and energy also rose 0.1 percent in February. An increase of 0.2 percent in the shelter index was the major contributor to the rise, but the indexes for medical care, airline fares, personal care, recreation, and new vehicles also increased. In contrast, the indexes for household furnishings and operations, apparel, used cars and trucks, and tobacco all declined in February. 

The all items index increased 1.1 percent over the last 12 months; this compares to increases of 1.5 percent in December and 1.6 percent in January. The index for all items less food and energy rose 1.6 percent over the last 12 months. The energy index declined 2.5 percent over the same period, while the food index has increased 1.4 percent.  More...

The Investing.com consensus forecasts for both headline and core month-over-month was 0.1%. Their year-over-year forecast was and 1.2% for Headline and 1.6% for Core.

The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since 1957. The second chart gives a close-up of the two since 2000.

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On the chart below I've highlighted 2 to 2.5 percent range. Two percent has generally been understood to be the Fed's target for core inflation. However, the December 12 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low Fed Funds Rate and quantitative easing) are in place.

Click for a larger image

Federal Reserve policy, which has historically focused on core inflation, and especially the core Personal Consumption Expenditures (PCE), will see that the latest core CPI remains below the near-term target range of 2 to 2.5 percent, and the more volatile headline inflation, further below the target range.