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Inflation’s always been a hot topic for economists. But since June 2022, when the Consumer Price Index (CPI) hit its highest level in 40 years (9.1%!) and the Federal Reserve hiked interest rates to their highest level in over 20 years, more folks have become interested in the data.
This is because inflation is a measure of our purchasing power. How much things cost and how quickly prices are rising directly impact not only how far a dollar will stretch for us, but also how far it will go for the companies that we invest in. And very few things make the stock market grumpier than a disappointing profit margin.
More recently, the escalating conflict between the U.S., Israel and Iran has caused oil prices to spike to their highest level in four years, muddying the inflation picture going forward.
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While it’s unlikely higher gas prices will have a major impact on the February CPI report, it’s still one of the most-anticipated events on this week’s economic calendar.
What time is the CPI?
The Bureau of Labor Statistics will release the February CPI report at 8:30 am Eastern Standard Time on Wednesday, March 11.
Headline CPI is expected to be up 0.3% from January to February and 2.4% from the year prior, according to FactSet. Core CPI, which excludes volatile food and energy prices, is forecast to rise 0.3% on a monthly basis and 2.5% year over year.
What is CPI?
“CPI is a measure of the average price of that basket of goods and services over time,” writes Kiplinger contributor Coryanne Hicks. “The specific goods and services within the CPI basket are based on information around 24,000 families and individuals give the U.S. Bureau of Labor Statistics on what they buy.”
Since inflation peaked nearly four years ago, the CPI and core CPI have declined. In January, headline inflation was up 2.4% year over year and core inflation was 2.7% higher.
“January inflation eased further, to 2.4%, continuing the trend of moderating inflation,” writes David Payne, staff economist and reporter for The Kiplinger Letter, in the Kiplinger Inflation Outlook. “It helped that used-car prices declined 1.8% and gasoline prices dropped 3.2%.”
And while egg prices dropped, Payne notes that costs for car rentals, airfare and home health care were all on the rise.
But the bottom line is that inflation remains too high for the Federal Reserve. So while the Fed has cut interest rates by 1.75 percentage points this cycle in response to a cooling labor market, it’s currently expected to keep the target range for the federal funds rate unchanged at its next three meetings, just as it did in January, to see how recent rate cuts are impacting inflation and employment.
So what does this mean for the February CPI report? Here, we look at some of what economists, strategists and other experts around Wall Street expect the inflation data to show and what the results could mean for the Fed and investors going forward.
What to expect from the February CPI report
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“If CPI and PCE show that core inflation, particularly in services and shelter, continues to cool, markets are likely to respond positively. Treasury yields could decline as rate-cut expectations are revived, the dollar may soften, and equities could find support. In that scenario, investors may conclude that the Fed still has room to ease later in the year, even if headline inflation temporarily rises due to energy costs. However, if the data reveal sticky or rising core inflation, the reaction could be sharper. Bond yields would likely climb, particularly at the short end of the curve, as traders scale back expectations for near-term rate cuts. Equities could come under renewed pressure, as higher discount rates combine with slower growth prospects to weigh on valuations. In that case, markets may begin to question whether the Fed has already delayed easing for too long.” – Daniela Hathorn, Senior Market Analyst at Capital.com
“The rise in oil prices adds to an already cost-exhausted consumer, who has been grappling with inflationary pressures for years, thanks to COVID-related supply chain disruptions, easy money policies and more recently, the reverberations of tariffs throughout the supply chain. Wednesday’s CPI for February will help to gauge the inflation picture prior to this recent geopolitical conflict and oil price surge, but we would expect this early March surge in oil prices to take some time to show up in the economic data. Friday’s PCE will also give insight into progress on the inflation metric the Fed watches most closely.” – Carol Schleif, Chief Market Strategist at BMO Private Wealth
“The February CPI report should continue to show consumer prices are contained with headline and core projected to rise by 0.3% m/m. That is unlikely to tilt the scales on the Fed’s near-term policy stance. Perhaps more important than the data is the evolving risk landscape for inflation as the Iran conflict poses upside risks to the inflation outlook through rising oil prices.” – Antonio Gabriel, Global Economist at BofA Securities
“The February CPI is likely to show that progress on lowering inflation is stalling out again. Although the conflict in the Middle East started over the weekend, oil and gasoline prices were already rising last month in anticipation of an escalation. We expect prices for food at home to fall 0.1% in February, providing some relief to consumers amid the strengthening in energy inflation.” – Wells Fargo economists
“It is much too soon to see increases in energy prices from the Middle East conflict in the official CPI report. With that said, investors are likely take the report with a grain of salt, knowing that around the corner energy may soon cease to be a disinflationary force.” – Jason Pride, Chief of Investment Strategy & Research and Michael Reynolds, Vice President of Investment Strategy at Glenmede
