Shen Wan Hongyuan released a research report saying that the US CPI for February, as announced by the US Labor Administration on March 12, was 3.2% year-on-year (quarterly adjusted, same below) and 0.4% month-on-month, slightly exceeding market expectations. It is worth noting that after the data was released, the 10Y US bond interest rate and the US dollar index rose, but since future durable goods inflation (weakening consumer consumption, etc.) and service inflation (wage growth) excluding the impact of oil prices will still cool down, judging from interest rate cut expectations, the impact of this data may be small. Currently, the market's earlier expectations of interest rate cuts that were too optimistic about the Federal Reserve have basically adjusted. The combination of interest rate cuts of 75 BP for the whole year is similar to the bank's judgment (the US economy is declining, supported by improved factors such as manufacturing and real estate, etc., “(Withdrawal” is unlikely to cut interest rates drastically).

Shen Wan Hongyuan's views are as follows:

On March 12, local time, the US Labor Administration announced that the US CPI for February was 3.2% (seasonally adjusted, same below) and 0.4% month-on-month, slightly exceeding market expectations.

In the CPI year-on-year contribution structure, energy contribution increased by 0.2 percentage points, and rents fell 0.1 percentage points. It can be seen that the 3.1% recovery in CPI compared to the previous month was mainly driven by energy segments (also stronger month-on-month), and the bank also observed that, driven by oil prices, some core inflation segments (transportation services, core non-durable goods) also rebounded month-on-month. It can be seen that the root cause of the strengthening of US inflation in February may be due to oil price transmission.

The rise in global oil prices in February led the US CPI to exceed expectations.

In February, the US energy CPI was 2.3% month-on-month and -1.7%, mainly reflecting that global oil prices continued to rebound since the beginning of the year since February (WTI oil prices rose 4.2%). On the one hand, it reflected the impact of OPEC+ production cuts, indicating that US energy inflation may still heat up slightly in the short term, so core non-durable goods inflation (clothing, etc.) may be more resilient. Moreover, delivery services in core services also accelerated to 1.4% month-on-month in February, which was also affected by oil price transmission.

The month-on-month decline in durable goods inflation narrowed, but the trend may still be weak in 2024.

The US durable goods CPI was -0.1% month-on-month in February and -0.5% last month. The decline was mainly affected by a slight increase in used car inflation from month to month. However, on the one hand, the Manheim used car price index has declined steadily since September last year, which means that vehicle inflation, a major component of US durable goods inflation, may cool down again. On the other hand, the core factor driving commodity inflation is the gap between supply and demand. US residents' commodity consumption may slow down this year, but industrial production is not weak under the guidance of inventory replenishment, indicating that US durable goods inflation may remain in a weak range during the year.

Rent inflation cooled month-on-month, and core non-rent inflation was polarized.

1) First, the US rent of shelter (rent of shelter) was 5.8% year-on-year and 0.4% month-on-month in February, which is cooler than last month, but this month-on-month level is still not weak. The trend of US rent inflation in the past six months has always been slightly stronger than market expectations, and there may be disturbances due to factors such as rent price transmission; 2) In February, US core non-rent service inflation contributed 1.1% year-on-year to CPI, unchanged from last month. However, it is internally polarized, as reflected in the decline in medical services to -0.1% month-on-month, but transportation services related to oil prices accelerated month-on-month. The former may reflect a decline in the wage growth rate of American residents. The market was once worried about a possible rebound in US core service inflation (excluding rent), but the latest US ISM service sector PMI price index fell sharply, pointing to the fact that in an environment where US income-consumption is cooling, it is also difficult for the job market, which determines some service inflation, to stand alone.

The bank maintained the view that the US CPI declined year on year in the first three quarters, but there may be a rebound in the fourth quarter. The average US CPI forecast for the whole year is around 2.9% year on year.

If the influence of oil prices is excluded, in the context of the increase in US personal tax payment/fiscal and personal tax revenue growth in 2024, the income growth rate of US residents this year will inevitably be one level lower than last year. This will gradually be reflected in US consumption, compounded by the gradual decline in US rent inflation (although it may be slow), and US CPI inflation may maintain a steady downward trend until the fourth quarter. However, there may be another recovery in rent inflation in the fourth quarter. In addition, long-term inflation in the US is still high (the 5-year inflation forecast is at 2.9%), and the overall level of US inflation may rebound.

US inflation data for February had limited impact on the Fed's decision to cut interest rates.

It is worth noting that after the release of the US CPI data for February, where supermarket expectations were strong, the 10Y US bond interest rate and the US dollar index rose, but due to future durable goods inflation (weakening consumer consumption, etc.) and service inflation (wage growth) excluding the impact of oil prices, the impact of this data may be small. Currently, the market's early interest rate cut expectations that were too optimistic about the Fed have basically been adjusted. The combination of interest rate cuts of 75 BP for the whole year until now is similar to the bank's judgment (US manufacturing economy is similar to the bank's judgment of interest rate cuts of 75 BP for the whole year) Supported by factors such as real estate improvements, “recessionary” The probability of a drastic interest rate cut is unlikely).

Risk warning: The tightening of the Federal Reserve has exceeded expectations.