February inflation report expected to show another ‘strong’ monthly increase

A closely watched inflation report due Tuesday is expected to show that progress in fighting price pressures within the economy slowed again in February.

Economists expect the consumer price index, which measures a range of goods that includes gasoline, health care, groceries and rent, to show that prices rose 3.1% in February – unchanged from the previous month.

On a monthly basis, inflation is seen rising 0.4%, which is higher than the 0.3% figure recorded in January, thanks to an uptick in energy prices.

“We expect [the report] to show another strong monthly increase,” said Brian Rose, senior U.S. economist at UBS Global Wealth Management. 

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Other parts of the report are also expected to point to a slower retreat in inflation. Core prices, which exclude the more volatile measurements of food and energy, are projected to climb 0.3%, or 3.7% annually. Those figures are down slightly from the 0.4% monthly figure and 3.9% headline gain in January, suggesting that underlying price pressures remain strong. 

The Federal Reserve’s target rate is 2%.

“The CPI index likely ran hot in February on higher gasoline prices, but core inflation likely slowed further as car prices fell and rent increases moderated,” said Bill Adams, chief economist for Comerica Bank.

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The central bank is closely watching the report for evidence that inflation is finally subsiding as policymakers try to gauge what comes next for interest rates in 2024.

Central bank officials have opened the door to cutting interest rates this year, but have pushed back against the market’s aggressive expectations. Fed Chair Jerome Powell said last week while testifying on Capitol Hill that policymakers are on track to cut interest rates sometime in 2024, but are not ready to do so until they are confident inflation is tamed.

“The committee does not expect that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%,” Powell said.

Central bank officials are also taking into consideration job growth and consumer inflation expectations when setting monetary policy.

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Inflation has created severe financial pressures for most U.S. households, which are forced to pay more for everyday necessities like food and rent. The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily impacted by price fluctuations.

While inflation has fallen from a peak of 9.1%, when compared with January 2021 – shortly before prices began to spike – the consumer price index is up a stunning 18.13%.