2.5% Core Inflation: Victory or False Alarm? | S3 E128 | 03-11-26

The latest inflation report came in right on expectations, but the underlying data tells a more complicated story.

In today’s episode of Markets with Megan, Megan disects the February Consumer Price Index (CPI) report and what it means for inflation, interest rates, and the Federal Reserve.

🚨 Topics Megan Covers:

• Headline inflation rises 2.4% year-over-year
• Core inflation comes in at 2.5% year-over-year
• Energy services jump 3.1% month-over-month and 10.9% year-over-year
• Medical care services rise 4% year-over-year
• Services inflation excluding shelter remains elevated at 3.3%
• Electronics and goods prices rise due to semiconductor shortages and higher metals prices

While the CPI report looked relatively tame on the surface, several key categories that affect everyday consumers are still showing strong price pressures. Rising costs in energy services, medical care, food, and consumer goods suggest inflation may not be fully behind us.

With the Federal Reserve meeting on March 18, policymakers are likely to remain cautious. Even with a routine inflation report and weaker labor market data, the Fed may hesitate to cut interest rates while energy prices and geopolitical risks remain elevated.

📊 Investors are now watching closely to see whether inflation continues to cool or begins to reaccelerate, especially as global energy markets remain volatile.

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Transcript

CPI Report With No Surprises

Seasonality And Hidden Inflation Risks

Services Inflation And Affordability Pain

Metals, Chips, Tariffs, And Prices

Iran War Risk And Fed Caution

Closing And Where To Listen

Megan Horneman 0:00

Well, we didn't get any surprises out of the inflation data this morning. It is Wednesday, March the 11th, and this is Markets with Megan. If you like this podcast, subscribe, hit the alarm bell, share it with your friends, family, or colleagues. We're going to talk today about economic data, and we've been focusing a lot on the war with Iran. So we haven't really delved into some of the economic data that we're getting, but the CPI report is always heavily scrutinized. And this morning it came in as expected at both the headline level and the core level. So at the headline level, which includes all of the different um price baskets, that was up, it's up 2.4% on a year-over-year basis. And then the core level is slightly higher, rising 2.5% on a year-over-year basis. So still not where the Fed wants it to be. But when we look underneath of this, we realize that the headlines are talking about how this was such a tame report. And it was tame. Typically, this was tame in fact for February, which February has a seasonal pattern to it where you tend to get a little bit of upside in prices because in the beginning of a calendar year, businesses may be more inclined to try and increase prices and get that through for that year. So they do that early on in the year. So this was tame from a seasonal perspective, but there's trouble brewing underneath that we still are not convinced inflation is completely behind us. And when we look at the service sector, which is where Americans spend the most of their money and what hurts the most, if you look at energy services, so this is utility and gas service, it's it's rising 3.1% on a month-over-month basis. It's up 10.9% on a year-over-year basis. And we often know that you know just affordability in general is a problem for Americans. When you take out energy, it rose six-tenths of a percent. Um, when you look at it's up 4.1% on a year-over-year basis. And then that is medical care services. Actually, I'm sorry, the medical care services that rose 0.6%. So that's excluding your all the energy. But when you look at medical care services, which is a problem for Americans, they're right, they're rising 4% on a year-over-year basis. And when you take out shelter costs, because shelter does make up a big portion of the CPI index, if you take out the the shelter services, that is it's still rising 3.3%. So nowhere near where the Fed wants it to be. We also started to see some impact from the rise in things like aluminum prices at the end of last year, also the shortage of semiconductor chips. You saw electronics rise. Um, you're seeing uh from the metal prices, you're seeing things like um household energy, carbonated drinks, which are rising, um, furnishings, and then there may be some tariff impact here because we did see um apparel prices. We're also seeing food prices rise. So all of these categories that really impact um consumers are not really letting up. So this is concerning because that while this is a February report, we had some inflation pressures brewing before the war with Iran. And now we're talking about a much bigger energy situation here and how much does that filter into inflation? Now the Fed meets March 18th. We don't think they're gonna do anything even with this routine report and a weak uh labor market report. And that's primarily because we need to see how this situation pans out from an energy perspective. They don't want to be cutting rates into a very inflationary risk scenario. That's all we have today. If you want a history of our podcast, you can go to marketswithmegan.fm. Thank you.