The UK CPI was weaker than expected in February at 2.8%yr compared to 3.0%yr in January. Core inflation edged down from 3.7%yr to 3.5%yr, but services inflation held up at 5.0%yr. However, decrease in both was mainly driven by weaker core goods inflation, while services inflation, which the BoE officials follow closely, was unchanged at 5%yr.
US durable goods orders beat expectations in February at 0.9% (consensus -1.0%). However, the strength was solely in transport and defence. Core goods orders (ex transport and defence) in contrast disappointed, declining 0.3%mth against the market’s 0.2%mth expectation. But given the steep rise at the beginning of the year of 0.9%mth, so far core orders in Q1 are 1.2%qtr higher than in Q4. If realised, it would be the highest quarterly pace since 2022.
St Louis Fed President Alberto Musalem warned overnight the “risks that inflation will stall above 2% or move higher in the near term appear to have increased”. While the direct effects of tariffs are transitory, “indirect, second-round effects on non-imported goods and services could have a more persistent impact on underlying inflation”. President Musalem is also watching for “signs that elevated near- term expectations could seep into longer-term inflation expectations, which would make the job of restoring price stability and maintaining full employment more difficult”. Until there is evidence inflation is converging to 2.0%yr sustainably, policy needs to remain modestly restrictive as it is assessed to be today. Minneapolis Fed President Neel Kashkari added that “policy uncertainty” is complicating the FOMC’s analysis and decision making. We might add that recent data suggests this uncertainty is also beginning to weigh heavily on consumer confidence, a significant concern given household consumption represents more than 70% of US GDP.
Yesterday’s data recap: Electricity prices fell as Victorian households received their third payment taking monthly Australian CPI inflation down to 2.4%yr while core inflation eased back to 2.7%yr (please see here for more details).
