Headline inflation increased 0.4% in the month, in line with our forecast and the consensus, but remains an unwelcome acceleration from an unrevised and already elevated 0.3% January reading. The yearly rate of inflation edged up to 3.2%.

Core CPI inflation, excluding food and energy, increased slightly more than forecast, up 0.4% last month and 3.8% from a year ago versus 3.9% in January, a more modest slowdown than the consensus had expected. Even more concerning is the fact that the three-month and six-month moving averages of core inflation accelerated and are moving in the wrong direction for a Fed that is trying to bring inflation to heel. 

This initial inflation report for February is an ugly read that will do nothing to soothe nerves on the FOMC. Inflation remains the number one problem they still have yet to solve. Clearly, restrictive monetary policy has not yet fully done its work and a patient and slightly hawkish Fed must remain in place for the monetary medicine to fully take effect.