Today’s CPI Miss

A double miss in headline and core, but by the smallest possible increment. If the annual reweighting of basket components hadn’t been implemented, CPI would have reported right at consensus estimates. Components that inflated the most were upweighted – notably housing, including OER – and those that deflated were downweighted – notably transportation, including energy. Nothing here changes our view that disinflation is underway and deflation is coming. By upweighting the most lagging components, deflation has more fuel now. It probably dooms our call for a March rate cut, but May and June are live prospects. Given booming economic growth and stocks at new highs, the Fed may well be wrong that policy is “highly restrictive.” It would be useful for stressed banks to have a lower funds rate sooner, but other than that it probably doesn’t matter for growth.