AAP Thoughts on the CPI

The February Consumer Price Index is hot off the presses and the good news is both the headline and core figures for the data matched consensus expectations at 7.9% and 6.4%, respectively. That said, both were up several ticks compared to the figures for January and prior months, meaning consumers continued to pay more for goods and services.

In short, while the report wasn't hotter than expected despite the surge in oil and gas prices during February, it will continue to stoke concerns over consumer spending power especially given the rise in commodities and other key inputs over the last few weeks given the Russia-Ukraine War.

To us that makes next week's February Producer Price Index the one to watch, with the same being said for the upcoming March Flash PMI reports from Markit Economics later this month. Given the backdrop of rising inflation, we continue to see Amazon (AMZN) , Walmart (WMT) , and Costco (COST) benefitting against that backdrop.

Breaking the February CPI report down, we see that as expected energy prices jumped 25.6% year over year with gas prices up a staggering 38%, a figure that resonates with consumers who are paying their home heating bills and tanking up their cars. Used car prices were also white hot, up 41.2% year over year.

Food prices also came in above the headline figure, up 7.9% year over year with food at home prices up 8.6%, while food away from home up a slightly more modest 6.8%. That dichotomy bodes well for consumers eating out more than at home, a positive for our shares of both Starbucks (SBUX) and Chipotle Mexican Grill (CMG) .

The fact that the February CPI report met consensus expectations and didn't come in blazing hot may give Fed Chair Powell and the Fed some room to go ahead with a 25 basis point rate hike next week. However, given the month over month increases in the CPI we've seen of late, as well as the sharp move higher in key commodities, we continue to think the focus will now be on what the Fed does at its May and June monetary policy meetings.

Should the Russia-Ukraine war be over and done by either of those meetings, the Fed may have to do some catch up on its interest rate hikes. And with that we're back waiting for the duration question when it comes to the Russia-Ukraine war, which should make understanding the Fed's updated economic projections and post FOMC meeting comments next week all the more important.

Action Alerts PLUS is Long AMZN, WMT, COST, SBUX, CMG.