The monthly Consumer Price Index inflation report has become must-watch economic data over the past year. But the February report, set to be released at 8:30 a.m. on Tuesday, has taken on extra significance in light of market volatility because of SVB’s collapse and the Federal Reserve’s quest to prevent other banks from failing.
It’s also one of the last major pieces of economic data to come out before the Fed’s rate-setting meeting next week.
Prior to the SVB collapse and related banking stresses, economists viewed February’s CPI as the potential decisive factor as to whether the Fed would stick with another quarter-point hike or ramp back up to a half-point hike.
Now, markets anticipate that it’s more likely that the Fed will go with another quarter-point hike — or even no hike at all.
In January, consumer price inflation surged by 0.5%, the highest monthly move since October. Economists surveyed by Refinitiv expect February CPI will show an overall slowing, with monthly inflation at 0.4% and yearly inflation at 6%.
That could mean a smaller rate hike at the Fed’s March 21-22 meeting. The central bank has been battling inflation with rate hikes for almost exactly a year now, hiking its benchmark lending rate eight times in that period. But the US economy still isn’t seeing enough of a turnaround in inflation.
That’s partly because the labor market remains truly strong. A robust job market — and, in turn, higher wages — puts upward pressure on inflation, even when other areas of the economy are slowing or seeing outright price declines.