US Inflation Trends: Tariff Risks and Economic Outlook

(Bloomberg) — US consumer prices are projected to have risen in February, indicating a slow but steady progress on inflation that Federal Reserve officials are closely monitoring. As they assess the ongoing policy changes from the Trump administration, the Bureau of Labor Statistics is expected to release figures on Wednesday showing that the consumer price index (CPI), excluding food and energy, increased by 0.3%. This figure, based on the median estimate of economists surveyed by Bloomberg, is slightly lower than January’s 0.4% gain, yet it keeps annual price growth at elevated levels.

Understanding Core CPI and Its Implications

The core CPI, which is a critical measure for the Fed, likely rose by 3.2% compared to February of the previous year. This data will play a significant role in shaping the Fed’s preferred price gauge, which will be released after the upcoming March 18-19 policy meeting. Currently, the interest-rate setters are in a blackout period, refraining from public comments as they prepare for this important gathering. The Federal Reserve has set an inflation target of 2%, and the latest data will be crucial in determining their next steps.

Current Economic Indicators and Labor Market Trends

The recent snapshot of price pressures comes on the heels of a February jobs report that indicated steady payroll growth, albeit with signs of underlying weaknesses in the labor market. The broader economy is also showing signs of softening, as evidenced by weaker consumer spending, declining sentiment, and a slowdown in homebuilding at the start of the year. These factors contribute to a complex economic landscape that the Fed must navigate.

Tariff Risks and Their Impact on Inflation

On the same day that the inflation data is expected to be released, 25% tariffs on steel and aluminum imports are set to take effect. US Commerce Secretary Howard Lutnick indicated on Sunday that he does not anticipate any reprieve from these levies. The introduction of these tariffs could further complicate the inflation landscape, as they may lead to increased costs for consumers and businesses alike.

Producer Price Index and Wholesale Level Pressures

On Thursday, additional data is expected to reveal persistent cost pressures at the wholesale level. The producer price index (PPI), excluding food and fuel, is projected to have risen by 3.5% in February compared to the previous year. This data will provide further insight into the inflationary pressures affecting the economy.

Fed’s Stance on Interest Rates

Chair Jerome Powell has emphasized that the Fed needs to see ‘real progress’ on inflation or some signs of labor-market weakness before considering any adjustments to interest rates. After early-year price resets stalled disinflation in January, policymakers are keenly awaiting February’s CPI data for signs of improvement. Analysts expect only modest progress, as residual seasonality effects continue to linger. The consensus estimate is that both headline and core CPI inflation rose by 0.3%.

Consumer Sentiment and Future Projections

On Friday, a report from the University of Michigan is anticipated to show a further decline in consumer sentiment. This survey will be particularly important for traders and Fed officials, as it includes metrics on inflation expectations. The Bank of Canada is also expected to cut rates by an additional 25 basis points on Wednesday if President Donald Trump’s tariff policies on Canadian goods continue to escalate. Previously, many economists had anticipated a pause in rate adjustments after recent data indicated a strong economic rebound in the fourth quarter.

Global Inflation Trends and Economic Highlights

This is a challenging moment for Bank of Canada Governor Tiff Macklem, who successfully managed to lower inflation and guide the country towards a soft landing, only to now face potential stagflation due to a trade war initiated by an ally. Meanwhile, inflation reports from countries such as China and Russia, along with growth data from the UK and a key speech by the European Central Bank president, are among the highlights of the week. The week began with China’s inflation report, which revealed a drop below zero for the first time in 13 months. Although this reading was influenced by seasonal distortions, it serves as a reminder of the persistent challenges facing global economies.

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