- Headline CPI (Y/Y) expected to rise 7.8% (prev 7.5%)

- Headline CPI (M/M) expected to rise 0.8% (prev 0.6%)

- Higher energy prices set to further boost inflation

- Consumer prices to put pressure on Fed to hike

- Data Due Thursday at 13.30

Luke Mumford

LiveSquawk News

9 March 2022 | 12.30 GMT

US Inflation is expected to exceed January’s 40-year high on Thursday with February data set to show annual consumer price growth nearing 8% and forward-looking indicators pointing to 9% in March as the Ukraine-Russia war pushes commodity prices to record levels.

Economists polled see annual CPI increasing 7.8% Y/Y in February versus January’s 7.5%, for the M/M economists forecast CPI rising to 0.8% up from January’s 0.6% print.

The January increases in indices for food, electricity, and shelter were the largest contributors to the seasonally adjusted all items increase. The food index rose 0.9% in January following a 0.5% increase in December. The energy index also increased 0.9% over the month with the electricity index being partially offset by declines in the gasoline and natural gas index.

Since then, Russia has invaded Ukraine, a move that sent commodity prices higher, a shift expected to have a significant impact on the February print. BMO wrote, ”A giant leap in gasoline costs alone could add 0.3 percentage points to the monthly increase in February.”

That, along with another beefy rise in food costs, is forecast to lift the headline index 0.9ppts. TD said the ramifications of the crisis between Ukraine and Russia on the energy market have led it to raise its inflation forecast to an annual rate of 3.6% in Q4 from 3%. Core CPI is expected at 3.3% in Q4 versus the previous estimate of 3.2%.

Barclays noted that inflationary pressures increased on the energy side, while price pressures in core goods categories moderated somewhat. At the headline level Barclays forecast that energy prices rose 4.7% on the month “following a modest increase in January primarily lead by gasoline and heating oil”. Barclay predicted February inflation at 0.8% on the month and 7.9% on the year.

The housing component in CPI equates to around one-third of index and is expected to continue its upward trajectory in February. HSBC wrote that “Rental inflation remained a source of upward pressure.” 

BMO noted that “Lofty rent increases are also due on deck in February due to an overheated housing market.”

Estimates for rent inflation are expected to exceed an annual rate of 7% later this year, up from 3.8% in January, whilst owners equivalent measure are expected to rise to 6% from 4.1%.

In 2021, the US car market was a key source for inflationary pressure, and this was apparent in January, with prices for used cars and truck surging 40.5% from a year earlier to add 1.1ppts to overall inflation. New cars costs also moved higher by 12.2%, adding 0.5ppts to the overall inflation reading. TD said, “Whilst inflation in used vehicles likely slowed in February, it was probably offset by continued strength in shelter prices.”

HSBC said other important price categories to watch include airline fares, hotel lodging rates, medical and car services.

Despite the geopolitical uncertainties, the Fed seems committed to raising rates at next week’s meeting after having already stood pat for some time in the face of raging inflation, initially dubbing it temporary before admitting that they were wrong.

Fed Chair Powell told the US congress at last week’s hearings that he is ready for an increase. “I’m inclined to propose a 25bp rate hike.”

Thus despite 40-year high inflation, US rate-setters seem satisfied with an initial quarter-point hike on 16 March. But because of geopolitical environment and subsequent weaker financial conditions, Powell did warn of more aggressive rate moves if inflation continued its trajectory higher ‘’I would be prepared to move more aggressively by raising rates by more than 25bp” at one or more meetings.’’