February’s Consumer Price Index (CPI) will serve as the latest test of whether an inflation resurgence is a risk to the US economy as investors debate if and when the Federal Reserve will cut interest rates in 2025.
The report, set for release at 8:30 a.m. ET on Wednesday, is expected to show price increases moderated during the second month of the year.
Headline annual inflation is forecast to come in at 2.9% in February, just below January’s 3% annual gain. On a month-over-month basis, prices are estimated to rise 0.3%, below the 0.5% increase seen in January.
On a “core” basis, which strips out the more volatile food and energy costs, CPI is expected to have risen 3.2% over the past year in February, a touch below January’s 3.3% increase. Monthly core price increases are anticipated to rise 0.3%, below January’s 0.4% rise.
In a speech last week, Federal Reserve Chair Jerome Powell warned inflation pressures would likely persist, even if Wednesday’s report comes in as expected: “The path to sustainably returning inflation to our target has been bumpy, and we expect that to continue.”
The report is set to arrive as more Wall Street watchers are now warning of another possible outcome for the US economy: stagflation.
A bleak economic scenario in which growth stalls, inflation persists, and unemployment rises, stagflation has become the latest buzzword in financial markets as investors attempt to understand the administration’s shifting trade narrative and other policy uncertainties, including recent efforts from Elon Musk’s Department of Government Efficiency (DOGE).
“Tariffs likely boosted inflation in February given the 10% hike on imports from China,” Bank of America economists Stephen Juneau and Jeseo Park wrote in a preview of Wednesday’s data. “Core services likely moderated [after] January was boosted by volatile components like airfares and lodging away from home.”
“We look for these categories to either show price declines or softer increases, and for rent inflation to be little changed from January.”
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Core inflation has remained stubbornly elevated due to sticky costs for shelter and services like insurance and medical care. But shelter did show some signs of easing in January, rising 4.4% on an annual basis, the smallest 12-month increase in three years. Similarly, the year-over-year increase in rent was the coolest since February 2022.
Still, core prices have remained above the Federal Reserve’s 2% target, a likely headwind to any potential interest rate cuts in the coming months.
