Combination of better inflation and economic data likely to boost Fed's confidence

US consumer price index rose 0.2% in Feb [Consensus & UniCredit: 0.2%]. The monthly increase, the first since Oct, was broad-based, with advances in shelter, energy, and food indexes all contributing. The CPI ex food & energy rose 0.2% for the second straight month [Consensus & UniCredit: 0.1%]. 

In addition to shelter, the indexes for used cars and trucks, apparel, new vehicles, tobacco, and airline fares were among those that increased. As a result, the core inflation rate improved to 1.7% yoy from 1.6%, while the headline inflation rate ticked up to 0.0% from -0.1%.

UniCredit Research notes .....

• We continue to expect that the upward pressure on prices stemming from diminishing economic slack will largely offset the negative impacts of lower oil prices and the stronger USD on the core inflation rate. In addition, economic data will likely rebound as the adverse impacts from the inclement winter weather and the port strikes fade.
• This combination of better inflation and economic data should convince the majority of FOMC members that June is the right time to start the normalization of interest rates. 
  
  
• In any case, we think that financial markets, which are now pricing only one full rate hike by the end of this year, are too dovish.