US: Expect CPI inflation to make a brief pause in March - Nomura

The research team at Nomura expects US CPI inflation to make a brief pause in March following continued increases for the prior 12 months as they are expecting a flat reading (-0.020% m-o-m) for the headline CPI and 244.441 for CPI NSA in March.

Key Quotes

“Our forecast translates into a 2.6% (2.649%) increase on a year-on-year basis, down 0.1pp from the previous month. While gasoline prices tend to increase strongly in March as spring driving season approaches, that seasonal increase was almost muted in March. Retail gasoline prices rose only slightly by 0.8% m-o-m on a non-seasonally adjusted basis. After seasonal adjustments, we think CPI gasoline prices declined by about 6.0% m-o-m in March. Other energy components such as heating oil and natural gas probably decreased albeit at a slower pace. As a result, our forecast for the aggregate energy prices is a 3.4% m-om decrease.”

“For food prices, which jumped relatively strongly in February, we expect another solid increase of 0.3% in March. Farmers’ received prices appear to have bottomed out in Q4 2016 and agricultural commodity prices are in general higher than in the first half of 2016. Thus, we expect CPI’s food-at-home prices (food prices at grocery stores) to have increased 0.4% m-o-m in March while food-away-from-home prices, the other subcomponent of food prices, seemed to increase at a tread-like pace of 0.3% mo-m in the month. Taking these into account, our forecast for aggregate food prices is a 0.3% m-o-m increase.”

“Excluding food and energy, core CPI will likely show another steady increase of 0.2% (0.226%) m-o-m in March, which would push up its year-on-year inflation to 2.4% (2.360%). Core goods prices appeared to rise slightly as the disinflationary pressure from the past appreciation of the US dollar continued to wane. On services, we expect airline fares to rise by 3.2% m-o-m, for a fourth consecutive increase, reflecting higher jet fuel prices while rent inflation probably did not accelerate in the month given imbalances between supply and demand in multi-family home markets in major metropolitan cities.”

“Our core service prices forecast is +0.288% m-o-m, which is close to a +0.282% in the previous month. The balance of risks to our core CPI forecast is slightly tilted toward the downside, as the recent weakness in auto market might have exerted additional downward pressure on vehicle prices, especially on used vehicle prices. Moreover, rent inflation, which accounts for the lion’s share in core CPI, might have decelerated. Note that our forecast is subject to the PPI report, scheduled for release on 13 April.”