What to Look for in the February CPI

March 13, 2023

The monthly Consumer Price Index (CPI) is scheduled for release by the Bureau of Labor Statistics on Tuesday, March 14th at 8:30 AM Eastern Time.

The clear evidence of slowing inflation in the CPI, as well as other price indices, through the second half of 2022 was weakened by the retroactive application of new seasonal adjustment factors, as well as big price jumps in January in many areas. While inflation is clearly down from its peaks in the spring of last year, the slowing is less pronounced or consistent than it seemed at the end of the year.

We know January was an extraordinary month, with sharp reported jumps in both employment and retail sales. It’s not clear the extent to which these jumps were artifacts of inappropriate seasonal adjustments, unusually good January weather, or actually reflect an underlying trend of faster growth.

The rapid job growth reported for February seems to support the case for an underlying trend of faster growth. However, hours worked actually fell in February. Wage growth slowed so that it is now back to its pre-pandemic, non-inflationary pace, so the picture is unclear.

Food and Gas Prices

Food and gas prices are both volatile, and for that reason not included in the core indices. However, they are regular purchases of households, so price changes in these areas very directly affect living standards. Also, inflation in these categories will affect people’s expectations of inflation, so even transitory changes can have a longer-term impact.
We got some moderately good news on food prices in January. The prices of store-bought food rose just 0.4 percent for the month, the smallest monthly rise since August of 2021. It is likely the picture will be somewhat better in February.

Egg prices rose 8.5 percent in January, putting them up 70.1 percent over the last year. However, egg prices at the wholesale level fell by close to 50 percent in January. This should mean some price reduction in the February CPI. There is a similar story with milk prices. These fell 0.4 percent in January, but are still up by 11.0 percent year over year and by more than 22.0 percent from their pre-pandemic level. The USDA’s survey of retail prices showed milk prices dropping by over 1.0 percent in February. We should see something like this in the CPI.

On the whole, food prices are likely to be close to flat in February, which will be helpful for families’ budgets. Gas prices are also likely to be close to flat. After falling for much the fall, gas prices jumped by 2.4 percent in January. They seem to have leveled off in the period since then, so we likely will see little movement in gas prices in the February CPI.


Both the rent proper and owners’ equivalent rent indexes rose 0.7 percent in January, following rises of 0.8 percent in December. We know that inflation in these indexes is headed sharply lower since private indexes of marketed units have been showing much lower rental inflation since the late summer. These indexes lead the CPI indexes by 6-12 months. The question is how long will it be before the CPI indexes of all rental units catch up with the indexes of marketed units.

It’s possible that the modest slowing we saw in January was the beginning of this process, which would mean that we can expect a further decline to 0.6 percent or even 0.5 percent in the February indexes. We also don’t know how low inflation in the rental indexes will ultimately go. Before the pandemic, rental inflation was running at close to a 3.5 percent annual rate. It is possible it will go somewhat lower, both as a reversal of the sharp run-up we saw in 2021 and 2022 and also as a result of a large number of new housing units coming on the market.

Supply Chain Items

We had been seeing a reversal in the run-up in prices of a number of goods where supply chain problems had created temporary shortages – that pattern weakened in January. The price of new vehicles rose by 0.2 percent in January, leaving them 5.0 percent above their pre-pandemic level. (Their prices had been falling before the pandemic.)
The price of appliances rose by 1.4 percent, the price of apparel rose by 0.8 percent, and the price of motor vehicle parts and equipment rose by 0.3 percent, putting them 22.6 percent above their pre-pandemic level.

It appears that supply chain problems have not been fully resolved, especially with cars where manufacturers report still being limited due to shortages of chips and other necessary inputs. The general direction for the prices of these items should be down over the course of the year, but we are likely to see erratic movements rather than a smooth downward trend.

Non-housing Services

The Fed has indicated that it would place a special focus on the prices of non-housing services, with the idea that these prices will be moved by longer-term factors, the most important of which is the pace of wage growth, rather than temporary supply disruptions. This view is somewhat problematic since the price of many of these services will be largely driven by commodity inputs.

For example, the price of auto repair services will be affected by the price of vehicle parts. The price of auto insurance, which accounts for more than 3.0 percent of the core CPI, will also be affected by the cost of repairing damaged vehicles. The prices charged by restaurants will be driven to a substantial degree by food prices.

But apart from this issue, it is worth noting that wage growth seems to have slowed sharply. The annualized rate of growth in the average hourly earnings series over the last three months was just 3.6 percent. The Employment Cost Index for the fourth quarter rose at just a 4.0 percent annual rate.

These measures suggest that we should see a moderation in the pace of price inflation in non-housing services, except insofar as price increases are driven by commodity inflation. Inflation in many of these services has remained moderate in the recovery. For example, the price of medical services has increased by just 3.0 percent over the last year and college tuition has risen just 2.3 percent.

Summary: Better than January

We may not get a clear message that we are on a path of slowing inflation, as seemed to be the case before the new seasonal adjustments and January price data, but the overall and core inflation rates are likely to be somewhat lower than January’s.

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