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PRIMER - US CPI is due at 12:30GMT/08:30EDT

Newsquawk Staff ·

  • IRAN: Analysts have said that the February CPI data may not inform the course for US monetary policy, since it is largely a reflection of prices before the Middle East conflict, which has pushed up energy, metals and crop prices. Before the conflict, officials were already warning that prices remained above the central bank's target and, barring any sharp downside in the labour market, policy was generally in a good place to tackle inflation. However, the conflict has since made officials more cautious about endorsing further policy loosening. While policymakers have previously suggested they can look through one-off price jumps, the situation remains fluid and there is little clarity over the duration of the conflict and, by extension, its medium-term impact on energy prices and supply chains. Accordingly, traders may look through the policy implications of the February CPI report as they seek further clarity. However, analysts expect the events, with inflation already above target, could make it difficult for the Fed to sound dovish at its March meeting next week. 
  • EXPECTATIONS: Headline CPI is expected to rise 0.2% M/M in February (prev. 0.2%), with the annual rate seen unchanged at 2.4% Y/Y; core CPI is also seen rising 0.2% M/M (prev. 0.3%), and the annual rate is seen unchanged at 2.5% Y/Y. 
  • FEDSPEAK: Fed's Williams (voter, neutral) said the conflict could hit both sides of the Fed's mandate in opposite directions, but stressed it was too early to know the size or persistence of the shock; he said oil moves of the size seen so far do not usually "fundamentally shift" the US economy, though the Fed must watch asset prices, trade spillovers and uncertainty. Fed's Kashkari (voter, neutral) has said the war has obscured the monetary policy outlook, and the key question is how long it lasts and how bad it gets. He warned that if headline inflation stays elevated for an extended period, after several years of high inflation, that is a scenario the Fed must watch closely because of the risk to inflation expectations. Fed's Barkin (2027 voter, neutral) said still-high inflation and firmer recent jobs data may be shifting the Fed's risk balance back towards inflation, just as the conflict with Iran threatens to push consumer prices higher. He said the expected PCE data "puts pause" on any view that the Fed is done fighting inflation, while acknowledging that nobody yet knows whether the oil move is short-lived or lasting. 

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