The US Consumer Price Index (CPI), excluding food and energy, likely rose 0.3% in February, indicating persistent inflation challenges for the Federal Reserve. This increase, while slightly lower than January’s 0.4% gain, still contributes to an elevated annual price growth, potentially exceeding the Fed’s 2% target.
Table Content:
Core CPI and Inflationary Pressures
Economists surveyed by Bloomberg project a 3.2% year-over-year increase in core CPI for February. This data will influence the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, released after the March 18-19 policy meeting. The Fed, currently in a pre-meeting blackout period, aims for 2% inflation. February’s CPI data follows a jobs report showing steady payroll growth but also potential weaknesses in the labor market. Signs of economic softening are emerging, including weaker consumer spending, sentiment, and homebuilding in early 2025.
A graph showing inflation trends.
Economic Transition and Trade Tariffs
President Donald Trump acknowledged an “economic transition,” downplaying concerns about a US slowdown amid market turmoil caused by his trade policies and federal job cuts. Adding to the economic complexity, 25% tariffs on steel and aluminum imports are set to take effect on Wednesday, with Commerce Secretary Howard Lutnick indicating no expected reprieve. These tariffs could further exacerbate inflationary pressures.
Producer Price Index and Wholesale Inflation
Thursday’s Producer Price Index (PPI) data is expected to reveal similar cost pressures at the wholesale level. Economists forecast a 3.5% year-over-year increase in core PPI for February, mirroring the persistent inflation trend observed in the CPI. This sustained wholesale price increase suggests that inflationary pressures are deeply embedded in the economy.
A photo of steel production.
Bloomberg Economics’ Perspective
Bloomberg Economics anticipates modest improvement in inflation, with both headline and core CPI rising 0.3% in February. They attribute this to lingering seasonal effects. Fed Chair Jerome Powell has stated that the Fed needs “real progress” on inflation or labor market weakness to adjust interest rates. February’s CPI data will be crucial in determining the Fed’s next policy move. The persistence of inflation above the 2% target, coupled with potential economic softening, presents a complex challenge for the Federal Reserve. The upcoming policy meeting will be critical in determining the central bank’s response to these conflicting economic signals.
