Consumer inflation witnesses barely relaxing in February

March 15, 2023: Consumer inflation may have been relaxing off a little in February, but economists anticipate it is still running rapidly.

On Tuesday, the consumer price index, expected, is forecast to show headline inflation increased 0.4% in the previous month, or 6% from before year, according to economists polled by Dow Jones. That compares to a 0.5% gain and an annual rate of 6.4%. Core inflation, which excludes food and energy, is anticipated to be higher by 0.4%, and the annual speed is anticipated to be 5.5%.

The report is anticipated at 8:30 a.m. ET.

A hot inflation report would have boosted anticipates that the Federal Reserve could improve the size of its coming interest rate hike to 50 basis points from the quarter point it did in February. But now, with markets more worried regarding bank failures and contagion, a group of economists doubt the Fed will even stick with a quarter-point hike when it meets on March 21 and 22. A basis point is at the same as 0.01 of a percentage point.

“Really how important we thought this one was going to be, it now is not almost as much of a market mover, giving the backdrop,” stated Kevin Cummins, chief U.S. economist at NatWest Markets. Cummins no longer anticipates the Fed to increase interest speeds this month and witnesses the rate hiking cycle at an end.

“I think if it’s stronger than anticipated, it would be looked at as small stale,” he stated. “From the perspective, if there are downside risks to the economy from the potential of what’s happening in financial businesses, it will be considered old news. If it’s softer, it could encourage the idea the Fed may be pausing.”

Cummins anticipated the economy to fall into a slump in the second half of this year, and he stated that the fallout from Silicon Valley Bank’s failure speeds that up if banks pull back on lending.

Cummins also anticipates the slowdown in the economy could cool down inflation.

But as of now, economists said shelter costs continued to jump in February while cost increases for food and energy slowed.

Tom Simons, money market economist at Jefferies, anticipates the Fed to stick with a quarter-point price hike in March.

“It would have to be much softer to take the hike out. Stopping here exposes them to the risk of inflation expectations reaccelerating,” said Simons. “If they do that, they risk making bigger moves later when they are unaware of what the surrounding will look like. It makes sense to be the course and keep all in check. They do have overwork to do.”