What To Expect From Wednesday’s Inflation Report

Inflation likely decelerated slightly in February but remained well over the Federal Reserve’s goal of a 2% annual rate if forecasts for Wednesday’s report are correct.

Wednesday’s monthly report by the Bureau of Labor Statistics is likely to show the cost of living, as measured by the Consumer Price Index, rose 2.9% over the 12 months ending in February, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal. That would be down from a 3% annual increase in January.

Wednesday’s inflation report could be consequential for the interest rate outlook, as it will be the last major price report officials at the Federal Reserve will see before their policy meeting on March 18-19. The Fed has held the fed funds rate at a higher than usual to discourage borrowing and quell inflation. However, uncertainty about President Donald Trump’s tariffs has raised concerns about a recession, complicating the outlook.

“This week’s inflation report is crucial for the U.S. Federal Reserve as it prepares for its monetary policy meeting, especially given the recent resurgence of inflationary pressures on goods and heightened policy uncertainty related to tariffs,” Satyam Panday, Chief U.S. and Canada Economist, S&P Global Ratings, said in a commentary.

Consumers likely felt inflation’s bite hardest at the grocery checkout in February, going by wholesale prices measured by the Producer Price Index.

“Given the sharp rise in prices for many food items in the PPI in January, and in other measures at earlier stages of production, it is likely that we will see the food component rise by at least 0.6% in February,”  Dean Baker, senior economist at the Center for Economic and Policy Research wrote in a commentary.

That would be the largest monthly increase in food prices since October 2022, during a fierce post-pandemic surge of inflation.

Inflation Outlook Is Tariff-ic

However, economists and officials at the Federal Reserve will pay closer attention to “core” inflation, which excludes volatile prices for food and energy.

Forecasters at Goldman Sachs expect core inflation to have risen 3.2% over the year, down from 3.3% in January. An ongoing, gradual decrease in rent is helping push core inflation toward the Fed’s goal of a 2% annual rate. The CEPR said that should continue in the coming months.

However, the specter of tariffs looms large over the inflation outlook. President Donald Trump said he will impose sweeping tariffs against Canada, Mexico, and other countries on April 2. The trajectory of inflation could hinge on how high those tariffs end up being and how many products and countries are affected.

Forecasters at Goldman Sachs now expect inflation to increase over the course of the year, whereas they projected it would have declined gradually in the absence of tariffs.