What Goes Up, Must Come Down Is Why U.S. Inflation May Be Tamer

  • More muted CPI expected after outsize gains driven by apparel
  • Core gauge probably rose 0.2% in February after 0.3% increase

Investors Brace for Inflation to Roar Back

Some consumer prices that skyrocketed in January probably returned to Earth in February, indicating fears of runaway U.S. inflation that jarred financial markets were overblown.

The consumer price index probably rose 0.2 percent in February from the previous month, after a 0.5-percent jump in January, according to the median estimate of economists surveyed by Bloomberg News ahead of Labor Department figures due Tuesday. Excluding food and energy, prices were projected to advance 0.2 percent following a bigger-than-forecast 0.3 percent increase in January.

Those earlier readings temporarily sent stocks tumbling when investors interpreted the data as an indication of the kind of inflation that would prompt the Federal Reserve to act more aggressively on interest-rate hikes, leading to higher borrowing costs for companies.

This time around, things are looking cooler. And one of the chief reasons put forward is that oft-cited fundamental law of physics: what goes up, must come down.

Still Rising

U.S. price gains seen easing in February after a spike in January

Source: Bureau of Labor Statistics

In January, apparel played a major role in boosting inflation, with the biggest rise in prices in about 28 years. Last year, a robust January print was followed by a weaker February outcome, also stemming from fluctuations in retail clothing prices. Societe Generale senior U.S. economist Omair Sharif is betting this year will show a similar outcome.

“Given the outsized jump in apparel prices in January, we would not be surprised to see a negative print in February” for apparel prices, he said in a note last week. Other categories -- including hospital services and motor vehicle insurance -- that fueled January’s core inflation increase may also slow, Sharif said, forecasting a gain in the core index of 0.16 percent.

On an annual basis, the main CPI probably rose 2.2 percent from a year earlier, up from 2.1 percent in January, while the core index’s gain was unchanged at 1.8 percent, according to median estimates.

The monthly employment report Friday showed slower wage growth in February, suggesting consumers will have limited capacity to absorb higher costs. Average hourly earnings increased at a 2.6-percent pace in February from a year earlier, less than the median estimate for a 2.8 percent gain.

What Our Economists Say

Until wage pressures pick up, consumer inflation will remain constrained...The February results are likely to show payback to unusual increases in core goods, such as apparel and used vehicle prices, which should pull the month-on-month change in the core to just 0.2 percent, down from the previous month’s elevated reading of 0.3 percent. Headline CPI should moderate to 0.1 percent from 0.5 percent prior, weighed by a modest decline in seasonally-adjusted gasoline prices.

-- Carl Riccadonna and Yelena Shulyatyeva, Bloomberg Economics

Read more for their full preview of the week’s U.S. economic data.
    Before it's here, it's on the Bloomberg Terminal. LEARN MORE