February CPI Report Forecasts Call for Slight Inflation Uptick While Awaiting Impact of Oil Spike

Key Takeaways

• After January’s cooler-than-expected inflation report, economists believe inflation remained steady in February, largely driven by lower vehicle and housing prices.
• Grocery prices are also likely to fall, helping to moderate a months-long trend of persistent inflation.
• Analysts believe the Fed will keep interest rates unchanged, especially since this report won’t reflect the surge in oil prices due to the Iran War.

Economists expect February’s Consumer Price Index report to show rising consumer prices and inflation stuck well above the Fed’s 2% target. The year kicked off with softer-than-expected inflation in January, thanks to early dips in durable goods and energy prices.

While the Iran War has caused oil prices to spike over the last week, economists say February’s CPI data was collected before the start of the conflict and won’t reflect the surge in energy prices. “This data is from before the recent conflict in the Middle East broke out, so it’s not going to give us a whole lot of information on how prices are starting to respond to that,” explains Josh Jamner, senior investment strategy analyst at ClearBridge. “That’s going to be a March and April dynamic.”

While inflation remains high, the rate of growth is expected to moderate somewhat. Jamner says February’s CPI report is likely to pick up where January’s figures left off: “We’ve had meaningfully above-target inflation over the past three to five years. The price remains high, while the rate of growth has slowed and moderated.”

Headline inflation is expected to rise 0.3% month over month and 2.4% from year-ago levels, both up slightly from January readings, according to FactSet estimates. Core CPI, which excludes volatile food and energy prices, is forecast to match its January levels at 0.3% month over month and 2.5% year over year.

Jamner expects price growth to ease for goods, including used cars and food, along with core services, particularly in the housing category.

Economists at Goldman Sachs and Wells Fargo also expect service prices to cool, according to their recent notes. However, analysts from both banks anticipate that core goods prices will continue upward due to tariff-related costs passing from producers to consumers. “The February CPI is likely to show that progress on lowering inflation is stalling out again,” Wells Fargo analysts wrote.

February CPI Report Highlights

• CPI report release date and time: Wednesday, March 11, at 8:30 a.m. EST
• The CPI is forecast to rise 0.3% in February after rising 0.2% in January.
• Core CPI is forecast to rise 0.3% in February after rising 0.3% in January.
• The CPI year over year is forecast to rise 2.5% in February after increasing 2.4% in January.
• Core CPI year over year is forecast to rise 2.5% again in February.

Economists Expect Auto and Grocery Price Slowdowns

While economists expect February’s inflation to stay in line with January’s figures, they remain split over which categories will be significant drivers of persistent inflation. Goods most exposed to tariff-related effects, including recreation, are likely to see upward pressure, according to Goldman Sachs analysts.

Meanwhile, ClearBridge’s Jamner thinks lower auto prices should offset growth in goods prices. January’s cooling inflation figures were largely driven by drops in used vehicle prices—a trend economists expect to continue. “There is some upside risk, but I think used cars, and the transport category in general, should help keep things in check overall,” says Jamner.

Jamner, along with Wells Fargo economists, also expect price growth for groceries to decelerate, reversing a trend over the last few months. Five of the six major grocery store food indexes increased in January’s CPI report. Jamner thinks housing inflation is also likely to slow. “Food has been a source of upside price pressure over the last couple of months,” he explains. “But we expect food and home prices to be cooler this month, and we might actually see outright deflation.”

Jamner is watching for moderate price deceleration that indicates the economy is on track to eventually reach the Fed’s 2% inflation target: “The key thing for investors to focus on is anything that adjusts the intermediate path of inflation.”

Fed Likely to Pause on a Rate Cut

Even in the case of a cool CPI print, Jamner expects Wednesday’s data won’t move the needle for the central bank as it heads into its March meeting next week. He says the Fed is in wait-and-see mode as it looks for clearer pricing signals following the Middle East conflict: “The Fed is going to want to gather more information before adjusting policy. I think we’re just too early, and there’s still too little information out there.”

A majority of market participants, about 97%, anticipate interest rates staying in the 3.50%-3.75% range, with the remainder predicting a quarter-point cut

A lasting Iran war could lead to a “more sustained increase” in oil prices, wrote Bank of America analysts in a recent note. While they expect the conflict to be short-lived, they think high oil prices and a worsening economic outlook, particularly for the jobs market, could provoke a rate cut. February’s jobs report came in weaker than expected. “In the near term, higher oil prices should keep the Fed firmly on hold,” wrote Bank of America analysts. “But if energy prices start to weigh on final demand, the Fed would likely turn more dovish in the medium term.”