High January Core CPI Adds to Risk of March Fed Rate Hike

The high 0.3% m/m January Core CPI raises the risk of a Fed rate hike in March, particularly given the two Fed officials who said in the latest FOMC Minutes that they are looking for hard evidence to bolster their expectations of a rise in inflation toward 2.0% (see my prior blog).

While most of the Core CPI speedup, if not all, probably reflected start-of-year price hikes,  there could be some carry-over into the February CPI because of bi-monthly sampling.

        a.  In 2015, the Core CPI rose 0.16% m/m in February after +0.17% in January.  Both exceeded the +0.1% m/m Q414 average.

The January 2016 Core PCE Deflator should speed up, as well -- probably to 0.2% m/m.    This would lift the y/y to 1.6% from 1.4% in December.  It would be the closest the y/y has gotten to the Fed's 2.0% target since 2012 and would be close to the 1.68% 10-year average of the Core PCE Deflator.