Consumer Price Index data for February is expected to show relatively high monthly inflation on nowcast estimates compared to recent data. If this forecast holds, that would be similar to January, where inflation sees a relatively high monthly increase, but stays close to 3% in terms of the annual inflation rate.
When Is The February CPI Report?
The U.S. Bureau of Labor Statistics will release CPI data for the month of February 2024 on Tuesday, March 12 at 8:30 a.m. ET. This will come roughly a week ahead of the U.S. Federal Reserve’s next scheduled meeting on March 20.
Nowcast Estimates Of Inflation
The Cleveland Fed maintains a nowcast estimate of inflation. These forecasts are not perfect but reasonably accurate, on average. The models use currently observable market price trends to estimate what upcoming inflation reports will be.
Currently, headline CPI is estimated to rise 0.43% for February and 0.32% once food and energy are stripped out — a measure termed Core CPI. For the month of March, which will be reported in April, the Cleveland Fed’s model currently estimates that monthly headline and Core CPI will trend lower to 0.25% and 0.3%, respectively. With more March data to come, that forecast will be updated, though.
The Personal Consumption Expenditures Price Index, which the Fed generally prefers, is released later in the month. It’s estimated to be 0.31% for February and 0.19% for March on a headline monthly increase basis. The next PCE update will come on March 29, after the Fed’s upcoming meeting.
Inflation Trends
After peaking sharply in mid-2022, the annual rate of inflation fell abruptly to summer 2023. However, since then, the decline in inflation has generally been more gradual and less pronounced. In addition, compared to low monthly increases in the CPI series in late 2023, monthly inflation may be picking up in early 2024. The result is that inflation is hovering closer to or above 3%, depending on the series used, when the Fed’s goal is 2% annual inflation.
The Fed’s Position
The Fed is generally pleased that inflation has declined overall, and has signaled that interest rate cuts are likely coming. This reflects the broad picture that inflation is now much lower than in 2022 and less of a major economic concern.
For example, looking at the Fed’s preferred PCE price index, the annual rise as of January 2024 is 2.4%. However, the Fed is still closely monitoring where inflation is trending. Leaders ideally want to ensure that it returns to the Fed’s 2% goal, rather than having it stuck at a slightly higher level — especially since deflation in certain goods prices may be pushing down inflation temporarily for now. The Fed is less concerned that inflation will surge again, but wants to make sure that even residual inflation is stamped out. That residual inflation is chiefly coming from the services sector today, and trends in housing costs are also being closely monitored.
What To Look For
If nowcasts hold, February’s CPI data won’t be too encouraging for markets looking for rock solid evidence for quick and significant rate cuts in 2024 and beyond. However, the Fed has signaled that the broadly favorable trend in inflation will likely cause it to cut interest rates by early summer. That would ease them closer to normal, down from current levels that are relatively restrictive. Still, if inflation is not moving closer to 2% on recent data, then interest rate cuts in 2024 — though still likely — may end up being less aggressive.
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