Shoppers are seen at a Kroger supermarket in Atlanta on Oct. 14, 2022.
Elijah Novelage | AFP | Getty Images
Rising gasoline prices likely put a floor on inflation in February, potentially bolstering the Federal Reserve’s decision to take a slow approach with rate cuts.
Economists expected prices for a broad range of goods and services rose 0.4 percent on a monthly basis, just ahead of January’s pace of 0.3 percent, according to the Dow Jones Consensus. Excluding food and energy, core inflation is forecast to rise 0.3%, also up a tenth of a percentage point from the previous month.
On a year-over-year basis, headline inflation is expected to rise 3.1% and headline inflation to rise 3.7% when the Labor Department’s Bureau of Labor Statistics releases its latest consumer price index reading at 8:30 a.m. Tuesday. m. E.T. The corresponding 12-month readings in January were 3.1% and 3.9%.
Although it has retreated sharply from its peak in mid-2022, the resilience of inflation is almost certain to ensure no rate cut by the Fed at its next meeting on March 19-20 and possibly in the summer at current rates of the market. Markets were jolted in January when CPI data came in higher than expected, and Fed officials changed their rhetoric afterward to a more cautious tone about easing policy.
“While we do not expect the inflation trend to accelerate again this year, less clear progress in the coming months is likely to keep the Fed looking for more confidence that inflation will return to target on a sustained basis.” Sarah House, senior economist at Wells Fargo, said in a recent client note.
Energy prices had retreated earlier in the winter, putting some downward pressure on headline readings.
But Wells Fargo estimates energy services rebounded 4% in February, leading to an increase at the pump, where a gallon of regular gas rose about 20 cents, or more than 6%, from a month earlier. according to AAA.
The bank also estimates that commodity prices have held their ground despite easing supply chain pressures and pressure from higher interest rates. On the bright side, the House said lower prices on travel, medical care and other services helped keep inflation in check.
However, Wells Fargo raised its full-year inflation forecast.
The bank’s economists now expect the core CPI to run at 3.3% this year, down from a previous estimate of 2.8%. Focusing on the core personal consumption expenditure price index, the Fed’s preferred gauge, Wells Fargo sees inflation at 2.5% for the year, down from a previous estimate of 2.2%.
Wells Fargo isn’t alone in expecting higher inflation.
In its February survey of consumers, the New York Fed found that while respondents maintained their one-year outlook for inflation at 3%, their expectations over the three- and five-year horizons accelerated to 2.7% and 2.9%. % respectively, both well ahead of the central bank’s 2% target.
While increases in natural gas prices can play a huge role in monthly fluctuations for the survey, the outlook for natural gas price increases was actually relatively favorable.
A measure by the Atlanta Fed “sticky price” inflation. held at 4.6% on a 12-month basis in January. The index is weighted by items such as housing and insurance, and Fed officials hope housing costs will decline over the course of the year, taking some pressure off cost-of-living gauges.
On Thursday, the BLS will release its February producer price index, which measures what producers get for their goods and services at the wholesale level. The two indicators will be the last inflation data the Federal Open Market Committee will look at in setting interest rates before it meets next week.