Bad or good? Key NUMBERS you need to know about February's inflation report?

February's Month-over-Month (MoM), headline came in at 0.4%, met expectation and core came in at 0.5%, slightly higher than expected 0.4%. For Year-over-Year (YoY), headline came in at 6% and core came in at 5.5%, which both met expectation.

Let's re-cap what the Fed is focusing on. In order to assess inflation, we need to break it down by three components: Core goods, Housing, and Core service ex-housing.

Firstly, Core goods came in at 0% MoM seasonal adjusted (S.A.), which is a deceleration from last month of 0.1%. Household supplies and Apparels came in hot, each recorded a 0.8% increase MoM S.A while Education (-0.8%) and Transportation commodities (-0.9%) offset the increase. Fed was cheering about deflation in core goods at the last FOMC, but in the recent two month, it's worth noting that those imported goods such as household supplies and apparels are back on its upward trend again once we lagged the inventory cycle.

Secondly, Housing came in at 0.8% MoM S.A. which is not unexpected. Housing inflation has been steadily increasing MoM at 0.6% - 0.8% range. The “hope” or expectation is that price in new leases (shown below) lagged the inflation data. There is sign that MoM new leases are cooling off which will eventually show in the coming inflation reports.

Lastly, core service ex-housing component is the most stickiest one among inflation and the Fed pays most attention to. The inflation read came in at 0.4% MoM S.A. or roughly 5% annualized.

Bottomline, inflation showed resilience against cooling off as quickly as some would have hoped due to base effect. To get the next lag down in inflation, we need to see core service decelerates. In totality, should the banking crisis didn't happen, Fed has a decent chance of jacking up the terminal rate by 50bps again. But here we are, data shows the inflation fight is not over, but the market clearly thinks Fed is done raising rates in the near future and start cutting by year end.