Consumer Price Index: Headline CPI Rises to 2.7%

The Bureau of Labor Statistics released the February Consumer Price Index data this morning. The year-over-year non-seasonally adjusted Headline CPI came in at 2.74%, up from 2.50% the previous month. Year-over-year Core CPI (ex Food and Energy) came in at 2.22%, down slightly from the previous month's 2.27%. This is the third month of Headline CPI above 2% since June 2014.

Here is the introduction from the BLS summary, which leads with the seasonally adjusted monthly data:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in February on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 2.7 percent before seasonal adjustment.

The February increase was the smallest 1-month rise in the seasonally adjusted all items index since July 2016. The gasoline index declined, partially offsetting increases in several indexes, including food, shelter, and recreation. The energy index fell 1.0 percent, with the decline in gasoline outweighing increases in the other energy component indexes. The food index increased 0.2 percent over the month, its largest rise since September 2015.

The index for all items less food and energy rose 0.2 percent in February. The indexes for shelter, recreation, apparel, airline fares, motor vehicle insurance, education, and medical care were among those that increased in February. Indexes that declined include communication, used cars and trucks, new vehicles, and household furnishings and operations.

The all items index rose 2.7 percent for the 12 months ending February; the 12-month increase has been trending upward since a July 2016 trough of 0.8 percent. The index for all items less food and energy rose 2.2 percent over the last 12 months; this was the fifteenth straight month the 12-month change remained in the range of 2.1 to 2.3 percent. The energy index rose 15.2 percent over the last year, while the food index was unchanged. [More…] was looking for a 0.1% increase MoM in seasonally adjusted Headline CPI and 0.2% in Core CPI. Year-over-year forecasts were 2.7% for Headline and 2.2% for Core.

The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since the turn of the century. The highlighted two percent level is the Federal Reserve's Core inflation target for the CPI's cousin index, the BEA's Personal Consumption Expenditures (PCE) price index.

Headline and Core CPI since 2000

The next chart shows both series since 1957, the year the government first began tracking Core Inflation.

Headline and Core CPI

In the wake of the Great Recession, two percent has been the Fed's target for core inflation. However, at their December 2012 FOMC meeting, the inflation ceiling was raised to 2.5% while their accommodative measures (low Fed Funds Rate and quantitative easing) were in place. They have since reverted to the two percent target in their various FOMC documents.

Federal Reserve policy, which in recent history has focused on core inflation measured by the core PCE Price Index, will see that the more familiar core CPI is above the PCE target range of 2 percent.