Houston: we might have a problem.
The February US CPI data show the month-on-month increase in core CPI inflation printed at 0.36%.
That's the second robust MoM print for the year, and it puts the idea of a statistical aberration in January to sleep.
To put things in context, if you want to clear away from the monthly noise in data and you want to focus on the underlying trend:
- The 3-month annualized rate of core CPI is 4.1%
- The 6-month annualized rate of core CPI is 3.8%
Yes, the Fed targets (core) PCE and not CPI but if I translate these measures into the underlying trend of core PCE I still end at 3% or above.
And on top of it, the stickiest subcomponent of the inflation basket - namely Core Services Ex-Housing PCE - is trending north of 4.5%.
In short: it's becoming harder and harder for the Fed to keep saying the disinflationary trend towards 2% is intact.
Inflation is rather stabilizing around 3% instead.
The ghost from the Volcker-era must be still haunting Powell, who doesn't want to go down leaving a Burns-like legacy but rather be remembered as the guy who tamed the burst of inflation in the early 2020s.
Well - if that's the case, standard risk management implies he will have to be hawkish at the March meeting.
And in the meantime, ''investors'' are busy buying NFTs of penguins and monkeys for over $500k...
Macro volatility will dominate markets over the next decade.