Disinflation continues. But is it enough for the Fed to act?

There were a few downside surprises on the inflation front last week. The Consumer Price Index (CPI) and the Producer Price Index (PPI) came in cooler than expected for February. This certainly supported Federal Reserve Chair Jerome Powell’s inflation checklist, but is this disinflationary progress fast enough to spur the Fed into rate-cutting action anytime soon?

Powell's Checklist CPI

9/30/2014 to 2/28/2025

Source: Bloomberg

Top items on Powell’s checklist that cooled in February are Shelter, now at its pre-pandemic average, and Supercore Services (excludes all goods prices, food and energy prices, and housing costs), which settled back down after January’s spike.

Core Goods (excludes food and energy) was the lone source of disappointment as apparel and household furnishings kept price growth in positive territory for the second consecutive month – despite the sequential cooling in used cars and a modest decline in new vehicles and parts.

Overall, the drivers of the softer CPI print were items that don’t feed into the Fed’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) price index. The most notable item is airfare, where prices plummeted 4%, detracting 4.6 basis points alone from core inflation. New PCE data will be released on March 28.

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