Published 13 Mar, 2023
Last month’s higher-than-expected US Consumer Price Index (CPI) prompted the Fed to adjust its rate hike plans. In a recent Senate meeting, Fed Chair Jerome Powell announced a potential 0.5% rate increase at the next meeting, instead of the 0.25% expected by analysts.
However, the unfolding situation with collapsed institutions Silicon Valley Bank (SVB), Signature Bank, and Silvergate Bank - which has prompted the US government to step in to guarantee deposits at SVB and Signature - may tip the scales bank in favor of 25bps.
Indeed, tomorrow’s inflation release from the Bureau of Labor Statistics (BLS) is likely to be the most anticipated data event of the past two years given that financial stability - as well as inflation - is a key priority for the Fed.
In January, US inflation remained high at 6.4%: lower than December's rate of 6.45%, but still well above the Federal Reserve’s (Fed) target of 2% and market expectations of around 6.2%. To curb inflation and cool down the economy, the Fed is increasing borrowing costs via higher interest rates, especially for businesses and home buyers. These actions have already impacted rate-sensitive sectors such as housing, leading to a slowdown in activity.
As such, Truflation expects a continued decline in the rate of inflation in February. We are forecasting that February's CPI number will stand at 6.1% year-on-year, and 0.6% month-on-month.
In January our prediction for a faster decline was not met due to the BLS official housing category. Our subsequent investigation leads us to believe our housing data is nine months ahead of the BLS. We have since adjusted our BLS CPI prediction to account for this lag. You can read more about our investigation into the BLS housing sector, and why we believe it is almost a year out of date, here.
Meanwhile, the live Truflation index, which is an independent, verifiable on-chain source of unbiased inflation data, is currently showing US inflation at 4.56% (as of March 14, 2023). Below we outline the deflationary and inflationary trends we are seeing in our data for February.
Utilities and alcohol decline in February
For February, the reduction in the rate of inflation on the Truflation index is driven by utilities, alcoholic beverages, public transportation, and healthcare.
Transportation prices remain stable
Housing remains downward driver, despite Feb uptick
Food: shoppers continue to feel the pinch
Truflation provides a set of independent inflation indices drawing on 30+ different data partners/sources and more than 12 million product prices across the US. The indices are released daily, making it one of the most up-to-date and comprehensive inflation measurement tools in the world.
Truflation has been leveraging its measurement tool to predict the BLS CPI number. Over the past four months, Truflation has accurately predicted outcomes for two months, with a deviation of only 20 basis points for the third, which still remained the closest to the market's projection. Last month’s prediction missed the mark by 60 basis points due to misaligned housing data, which we expect to persist until the end of March.
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