Consumer Price Index February 2024

Sticky inflation keeps Fed in wait-and-see mode 

  • Headline Consumer Price Index (CPI) rose 0.4% month over month (m/m) in February, in line with expectations, following a 0.3% increase in January. Energy prices rose 2.3%, reflecting a rebound in gasoline prices and broad-based increases in fuel oil and natural gas prices. Meanwhile, food prices were unchanged on the month, which marked their softest monthly print since April 2023. Overall, headline CPI inflation ticked up to 3.15% year over year (y/y) rather than holding steady as anticipated.
  • Core CPI rose 0.4% m/m for a second straight month in February, a stronger than expected outcome that points to some lingering stickiness at the core level. Core goods prices rose 0.1% after a string of eight consecutive monthly declines. And core services prices increased at a 0.5% clip following a 0.7% jump in January, with shelter costs and airline fares driving the increase. Importantly, the Fed’s favored supercore CPI measures (core services excluding shelter costs) rose a more moderate but still too-hot-for-comfort 0.5%, following a hot 0.85% in January.

  • Core CPI inflation only eased 0.1 percentage point (ppt) to 3.8% y/y — its lowest since April 2021. While this is an encouraging step down, it indicates the Fed won’t yet have the confidence that inflation is sustainably moving lower toward 2%.

  • The short-term dynamics point to some leveling off in inflation trends. On a three-month annualized basis, headline CPI picked up 1.2ppt to 4% while core CPI picked up 0.2ppt to 4.2%. On a six-month annualized basis, headline CPI cooled 0.1ppt to 3.2% while core CPI inflation rose 0.3ppt to 3.9%.

  • At next week’s Federal Open Market Committee policy meeting, Fed officials will likely put this inflation report in the “good but insufficient” column as they continue to exercise caution in assessing when to start easing policy. We expect inflation will continue to move lower in coming months. And, with Fed Chair Jerome Powell recently stating that the Fed was “not far” from having sufficient confidence to start cutting rates, we see the Fed policy easing cycle starting in June. We continue to expect the Fed will proceed with 100 basis points of cuts this year.

  • Looking ahead, five key elements should still form the perfect mix for disinflation throughout 2024: cooler consumer demand growth, declining rent inflation, narrower profit margins, moderating wage growth and stronger productivity growth.

Looking into the details

Energy prices rebounded 2.3% m/m in February following four consecutive monthly declines. The increase was driven by a 3.8% jump in gasoline prices and a 2.3% increase in utility gas prices. 


Food prices were flat on the month following a strong 0.4% increase in January. Restaurant prices were up 0.1% on a non-seasonally adjusted basis, which marked their weakest increase since March 2021, and grocery store prices were unchanged on falling prices for dairy and fruits and vegetables. Grocery store price inflation has moderated markedly from a peak of 13.5% y/y in August 2022, to just 1% y/y. Still cost fatigue is perceptible as price levels remain significantly higher than pre-pandemic. 


Core goods prices posted a mild 0.1% increase in February, the first monthly gain in nine months. Used car prices rose 0.5% following a 3.4% m/m plunge in the prior month, and new car prices edged down 0.1%. Used car prices are now 1.8% lower than last year while new car price inflation has slowed from 5.8% in January 2023 to 0.4% y/y. Apparel prices rebounded 0.6% partially reversing the large 0.7% decline in January and are now at the same level they were a year ago. 


Core services prices rose 0.5% m/m — slightly above the average 0.4% m/m gain in H2 2023 — following a stronger than expected 0.7% advance in January. The Fed’s favorite supercore CPI gauge (core services prices excluding shelter costs) rose 0.5%, showing some welcome moderation from the red-hot 0.85% m/m advance in January. Yet, the February monthly pace remains too hot for comfort. 


Looking into the services details, transportation costs rose 1.4% m/m driven by a 3.6% jump in airline fares and a 0.9% increase in motor vehicle insurance prices. Auto insurance prices have risen for 28 consecutive months as insurance companies factor the higher vehicle prices and higher costs of repair. Meanwhile, car rental prices climbed 3.8%.


Medical care services fell 0.1% m/m — the weakest monthly print since August 2023 — and were driven lower by a 0.6% decline in hospital services. Health insurance prices rose a modest 0.4% m/m on a non-seasonally adjusted basis — marking a break in the string of 1% increases in the prior four months. 


Shelter costs moderated in February with a 0.4% m/m increase, as rent prices rose 0.5% m/m and owners’ equivalent rent posted a 0.4% advance after seeing a large increase in January, which reflected a change in methodology. Hotel prices saw another strong increase last month, up 3.1% following a 4.3% gain. Overall, shelter inflation cooled 0.3ppt to 5.7% in February and is now well below its 8.2% peak of March 2023.


Looking ahead, we expect underlying disinflationary dynamics to remain firmly in place including increased price sensitivity, reduced margins, wage growth compression and easing shelter cost inflation.

The views reflected in this article are the views of the author(s) and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.