The Consumer Price Index (CPI-U) rose 0.3% in February, matching Consensus expectations for a 0.3% gain. A 0.2% rise in prices less food & energy was slightly firmer than the 0.1% Consensus expectation.

Prices of core consumer goods rose 0.2%, the firmest one month gain since August 2002. This strength reflected a 0.4% (2.4% y/y) rise in medical care commodities, a 0.4% (4.7% y/y) rise in educational books & supplies and a 0.4% (-0.7% y/y) gain in new vehicle prices. Prices for home furnishings & operation, up 0.2% (-1.6% y/y), also rose for the second consecutive month.

Apparel prices fell another 0.1% (-1.6% y/y) and tobacco prices also were off slightly (-0.0% y/y).

Core services prices rose a modest 0.1% as shelter prices ticked up just 0.1% (2.1% y/y). Prices for medical care services jumped 0.7% (4.7% y/y) but public transportation prices eased slightly (+2.2% y/y).

Energy prices moderated to a 1.7% gain following the 4.7% January spike. Gasoline prices rose 2.5% after the 8.1% jump in January (+2.0% y/y) but are up another 4.7% so far in March. Fuel oil prices rose 1.0% (-0.7% y/y) and piped gas prices rose 0.9% (6.2% y/y).

Food prices rose 0.2% and mostly reflected higher prices for fruits & vegetables, up 1.0% (2.9% y/y).

The chained CPI which adjusts for shifts in consumer buying behavior surged 0.6%. It is similar to the PCE price deflator. The core chain price measure also surged by 0.5%, the strongest gain since February 2002.

"Classical Deflation Theory" from the Federal Reserve Bank of Richmond can be found here.

The index of mortgage applications compiled by the Mortgage Bankers Association jumped 25.6% last week for the fifth consecutive weekly gain.

Applications to refinance surged 39.7% (-46.9% y/y) as interest rates remained low.

The effective interest rate on a conventional 30-Year mortgage rose to 5.62% from 5.61% the week prior, but these rates are the lowest since last June. The effective rate on a 15-year mortgage ticked up to 5.01%.

Purchase applications rose 5.6% w/w (+30.3% y/y) and so far in March are 6.0% ahead of the February average.

During the last ten years there has been a 56% correlation between the y/y change in purchase applications and the change in new plus existing home sales.

The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site here.