Will the rate of core CPI inflation be above 2.5% for the year ending in February 2026?

The path to a YES resolution (>2.5%) relies on sticky shelter inflation and a 'hot' February monthly print of 0.3% or higher. In January 2026, Core CPI rose 0.3% month-over-month, driven by a 3.0% annualized increase in the heavyweight shelter component. If this momentum persists, a 0.3% print in February would likely push the year-over-year rate to 2.6% (beating the 2.5% threshold), as the 0.23% print from February 2025 drops out of the calculation. Furthermore, the 'last mile' of disinflation has proven difficult. While goods prices have cooled, service sector inflation remains elevated. Specifically, medical care services (up 3.2% YoY in Jan) and personal care (up 5.4% YoY in Jan) are showing renewed strength. If these categories offset the deflation in used cars, the aggregate Core CPI could surprise to the upside, mirroring the January 0.3% surprise that defied expectations of cooling.

The base rate and leading indicators strongly favor a NO outcome (≤2.5%). The Cleveland Fed's Inflation Nowcast for February 2026 stands at 2.46% year-over-year, which rounds to 2.5%—a losing result for this market. This forecast implies a monthly increase of approximately 0.19%, significantly below the ~0.28% needed to push the annual rate up to 2.6%. The base effect is also a hurdle: the February 2025 print of 0.23% is relatively low, meaning we need a substantial acceleration in the current month to drive the annual rate higher. Recent high-frequency data supports further cooling. The January 2026 report showed used car prices falling 2.0% and energy prices dragging on broader transport costs. While January's 0.3% core print was elevated, it likely reflected start-of-year price resets (tariff adjustments and annual contract renewals) that typically fade in February. With the Cleveland Fed's model explicitly predicting a 2.46% outcome and the trend in core goods remaining deflationary, the probability of breaking above 2.5% is lower than the market implies.