Shoppers are seen at a Kroger supermarket in Atlanta on October 14, 2022.
Elijah Nouvelage | AFP | Getty Images
Rising gasoline prices are likely to undermine inflation in February and potentially reinforce the Federal Reserve’s decision to take a slow approach to interest rate cuts.
Economists expect prices for a broad range of goods and services rose 0.4% for the month, just above January’s pace of 0.3%, according to the Dow Jones consensus. Excluding food and energy, core inflation is forecast to rise 0.3%, also a tenth of a percentage point above the previous month.
Year-over-year, headline inflation is expected to increase 3.1% and core inflation 3.7% when the Labor Department’s Bureau of Labor Statistics releases its latest consumer price index reading at 8:30 a.m. ET on Tuesday. The respective 12-month values in January were 3.1% and 3.9%.
Although it has fallen sharply since its peak in mid-2022, inflation’s resilience will almost certainly ensure that there will be no rate cuts at the Fed’s next meeting on March 19-20 and possibly into the summer based on current market prices comes. Markets were thrown into turmoil in January when CPI data came in higher than expected, and Fed officials changed their rhetoric thereafter to a more cautious tone on monetary easing.
“Although we do not expect the inflation trend to accelerate again this year, less clear progress in the next few months is likely to leave the Fed continuing to seek greater confidence that inflation is on track to return to target sustainably. Sarah House, senior economist at Wells Fargo, said in a recent note to clients.
Energy prices had fallen at the start of winter, putting some downward pressure on overall values.
But Wells Fargo estimates energy services rose 4% in February, leading to a spike at the pump, where a gallon of regular gas is about 20 cents more expensive, or more than 6%, compared to the previous month, according to AAA.
The bank also estimates that commodity prices have held steady despite easing supply chain pressures and pressure from higher interest rates. On a positive note, the House said lower prices for travel, medical care and other services helped keep inflation under control.
Still, Wells Fargo raised its full-year inflation forecast.
The bank’s economists now expect core CPI to be 3.3% this year, down from the previous estimate of 2.8%. Wells Fargo focuses on the core personal consumption expenditures price index, the Fed’s preferred measure, and expects inflation to reach 2.5% for the year, compared with a previous estimate of 2.2%.
Wells Fargo isn’t alone in expecting a higher pace of inflation.
In its February consumer survey, the New York Fed found that while respondents stuck with their one-year inflation expectations of 3%, their expectations for the three- and five-year periods rose to 2.7% and 2.9%, respectively, both good Values above the central bank’s 2% target.
While increases in gas prices may play an outsized role in the survey’s monthly fluctuations, the outlook for gas price increases was actually relatively favorable.
A measure of sticky price inflation from the Atlanta Fed remained at 4.6% on a 12-month basis in January. The focus is on items such as housing and insurance, and Fed officials hope that housing costs will fall throughout the year, easing some pressure on the cost of living.
On Thursday, the BLS will release February’s producer price index, which measures what manufacturers receive for their goods and services at the wholesale level. The two indexes will be the last inflation data the Federal Reserve’s rate-setting Federal Open Market Committee will see before it meets next week.
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2024-03-12 00:41:41
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