CITIC Securities: Expect the US CPI year-over-year growth rate to rise in March and April

CITIC Securities Research Report believes that the US February CPI fully met expectations, with moderate core inflation. However, market focus has shifted away from this somewhat “outdated” data. In the baseline scenario where Iran conflicts ease in a few weeks or market reactions become muted, CITIC Securities expects the year-over-year US CPI growth rate to rise in March and April due to rising oil prices and compensatory rent inflation, respectively, then fluctuate around 3%.

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Overseas Macro | US CPI: Storm Clouds Gathering? (February 2026)

The US February CPI fully met expectations, with moderate core inflation. However, market focus has shifted away from this somewhat “outdated” data. In the baseline scenario where Iran conflicts ease in a few weeks or market reactions become muted, we expect the US CPI year-over-year growth to increase in March and April due to rising oil prices and compensatory rent inflation, respectively, then fluctuate around 3%. The Federal Reserve does not need to overreact to oil price fluctuations. The US dollar may remain relatively strong and volatile in the near term, and the 10-year US Treasury yield lacks sufficient downward room.

Matters:

US February inflation fully met expectations, with the overall CPI year-over-year growth rate remaining at 2.4%, the overall CPI month-over-month increase rising from 0.2% to 0.3%, and core CPI year-over-year remaining at 2.5%. Core CPI month-over-month slowed from 0.3% to 0.2%.

Before the Iran conflict outbreak, US inflation remained stable, with moderate core inflation.

In February, food items rose 0.4% month-over-month, and energy items, unaffected by the Iran conflict, rose 0.6%, both higher than previous values. Core goods month-over-month increased from 0% to 0.1%, still very moderate, with clothing up 1.3% and used cars down 0.4%, both higher than before. Core services month-over-month slowed from 0.4% to 0.3%, mainly because the slowdown in airfare prices affected core services outside housing, from 0.6% to 0.3%. Housing remained steady at a healthy 0.2%. We expect the US January PCE deflator to increase by 0.3% month-over-month overall, with core up 0.4%. Overall, this CPI report shows a stable inflation picture in the US before the Iran situation escalates. However, with the Iran conflict intensifying in early March and the Strait of Hormuz potentially shutting down, market attention has clearly shifted away from this somewhat “outdated” data to preparing for potential inflation risks.

The US CPI month-over-month should reflect recent oil price increases more clearly in March.

Oil accounts for about 6.4% of the US CPI. We estimate that a 10% rise in Brent crude oil prices corresponds to approximately a 0.13% increase in the overall US CPI. The International Energy Agency (IEA) announced on March 11 plans to release 400 million barrels of oil into the market. Roughly, this is equivalent to about three weeks of oil shipments when the Strait of Hormuz is normally open. If the “military action lasting about four weeks” scenario materializes, the IEA’s plan to release reserves should help calm market panic. However, like recent swings in TACO expectations, oil prices may continue to fluctuate. If Brent crude prices rise from around $70 to about $90 per barrel and stay there, recent oil price increases could lift March US CPI month-over-month by about 0.36 percentage points. We believe this increase is acceptable and unlikely to trigger a second round of inflation. If the Iran situation eases in a few weeks and oil prices fall back, energy could become a drag on inflation.

In the baseline scenario where Iran conflicts ease in a few weeks, the Fed need not overreact to oil price fluctuations.

Tariffs’ impact on core goods may weaken, and increased housing supply will limit rent inflation. A steady labor market also means super-core inflation has limited upward potential. Our baseline is that US CPI year-over-year growth will rise in March and April due to rising oil prices and compensatory rent inflation, then hover around 3%. This “acceptable” inflation outlook suggests the Fed does not need to overreact to recent oil price increases. Its policy tightening thresholds will not be too high, and there is room for up to two rate cuts in the second half of the year. The US dollar, during the conflict, is relatively easy to rally as a “safe-haven + inflation” currency, and may remain somewhat strong and volatile. The 10-year US Treasury yield, supported by steady economic growth momentum, is unlikely to fall significantly below 4%.

Risk Factors:

• Iran situation evolving unexpectedly or other unforeseen events
• Overseas economic and inflation performance exceeding or falling short of expectations
• Global market liquidity or sentiment changing more than expected

(Source: People’s Financial News)