US Inflation Update

Data Preview & Forecast

• MUFG forecasts February 2026 core CPI monthly growth (MoM) of 0.291% and annual growth (YoY) of 2.484%.
• The base effect is expected to contribute 0.23% points to YoY growth in core CPI, down from the Jan high but historically elevated.
• What to watch out for: High weight items including shelter, transportation and healthcare. Leading indicators suggest easing MoM growth in airline fares to be offset by accelerating MoM growth in used autos. OER expected to rebound MoM under normal volatility, though growth may be offset by easing professional medical and inpatient hospital services.
• Oil prices began their upward climb in Jan, but the direct impact on energy prices from the Middle East conflict will not be felt until Mar.

Market Thoughts

• Base-case view: The market is likely expecting a consensus number for the February CPI release and therefore, the composition of the report will determine what happens. If there are no specific one-off factors that can be dismissed, a consensus number could still elicit a small sell-off in rates as markets are on edge over the potential for a spillover from oil markets in the months ahead.
• Upside risk: Since the war began, the focus has shifted to stagflation. If core CPI comes in above 0.3% MoM, that could further flatten the curve as Fed cuts get pushed deeper into the 2nd half of 2026.
• Downside risk: Overall, we think the bar is high for the rates market to meaningfully rally on a softer inflation reading as the market will dismiss it as a start of a trend given the concerns over oil prices.