March’s Consumer Price Index report covering the month of February is expected to show a deceleration in inflation, according to nowcast estimates. That would be welcome news for the Federal Open Market Committee after inflation has heated up a little since last September.
Even if there is some good news on inflation, there is still little chance that the FOMC cuts interest rates in March on fixed income market estimates, but the same projections suggest that there may be a summer interest rate cut. Over the intervening months, tariffs might complicate the inflation picture further.
The Timing Of March’s CPI Report
March’s CPI report will be released on March 12 at 8:30am E.T. That’s a week ahead of the FOMC’s next scheduled interest rate decision on March 19. Nowcast project inflation to rise 0.23% month-on-month for the month of February, with a 0.27% monthly increase for core CPI according to the projection models of the Cleveland Federal Reserve. If so, annual inflation would still be closer to 3% than the FOMC policymakers’ 2% goal, but some cooling in inflation compared to a 0.5% monthly increase for January would be welcome.
Prediction markets see a reasonable chance that February’s CPI inflation figures exceed 0.3% according to Kalshi, so it’s possible that the inflation report is not quite as encouraging as the latest nowcasts imply, even if deceleration is anticipated.
Recent Inflation Trends
The FOMC had been hoping inflation would trend closer to its 2% annual target to justify further rate cuts. However, since September inflation has picked up a little. The Atlanta Fed tracks a broad range of inflation metrics, all of these are lower in January 2025 than in January 2024, but all are above where the FOMC want inflation to be. The FOMC’s preferred Personal Consumption Expenditures Price Index showed 2.5% annual inflation to January, which is a little better than most other inflation gauges but still above target.
The Drivers Of Recent Inflation
Inflation has picked up since last summer for different reasons. Shelter costs carry a large weight in the CPI price series and have continued to rise. In addition, service prices from medical costs to car insurance have risen in price. Eggs are rising in price, too. The USDA predicts egg prices may rise over 80% in 2025. Eggs are a small part of the inflation calculation, but have risen in to all time highs with the avian flu outbreak. That’s been enough to move food prices higher even if certain other foods are seeing price rises as well.
Inflation remains well below peak levels, but the last few months of inflation reports have been notable for inflation drifting away from the FOMC’s target rather than toward it.
Tariffs Impact On Inflation
March’s inflation report may see some early impact from the 10% additional tariff imposed on Chinese imports that was implemented on February 4. However, further tariffs may begin in March concerning Canadian, Mexican, steel and aluminum imports. Plus, there may be further tariffs may fall on Chinese and possibly European imports. These could cause inflation to pick up because tariffs raise prices for domestic consumption of impacted products and services.
It remains to be seen how the FOMC reacts to tariffs, which may theoretically cause a one-off increase in certain prices rather than raise the ongoing inflation rate. However, the impact of second-order impacts such as copycat price rises or corporate margin expansion as well the impact of any possible retaliatory tariffs are unclear. Still as much as CPI data could offer some signal that inflation is cooling, questions about tariffs and their potential impact on inflation over the coming months may remain.
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