Even before President Trump’s tariffs took effect, Wall Street was already concerned about a possible increase in inflation; investors don’t want to see another dismal price reading.
Inflation is unlikely to seem any worse, but the February consumer-price index report, which is scheduled to be released on Wednesday morning, surely won’t provide much consolation.
It is predicted that both the total CPI and the so-called core index, which excludes food and energy, will increase by an undesirable 0.3%.
Price increases typically range from 0.1% to 0.2% per month when inflation is modest and steady.
In the meantime, the annual rate of inflation would still be much above the Federal Reserve’s target even if it were to fall down to 3%.
The February data is unlikely to calm market concerns or prompt an immediate interest rate drop by the Fed.
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Investors are unlikely to take much comfort if the CPI is lower than expected or even meets the market prediction. Since Trump took office less than two months ago, the prognosis for the U.S. economy has changed significantly.
However, a figure higher than anticipated would exacerbate concerns about inflation as the effects of Trump’s tariffs became apparent.
In any event, inflation will continue to be a major concern in the United States for some time to come.
According to Julien Lafargue, chief market strategist at Barclays Private Bank, “it feels like this could be a lose-lose situation.” “Indeed, a higher-than-expected reading could fuel the stagflation narrative while a weaker-than-expected print could cement recession fears.”
The 2% inflation target is elusive.
Rising housing costs and consistent service price rises are the main reasons why the Fed has been unable to bring inflation down to its 2% target.
Most families’ largest expenses are rent and housing, and although price rises have halted, the cost of housing is still increasing more quickly than the wages and salaries of the majority of individuals.
For example, for the 12 months ending in January, the cost of rent increased by 4.4%. Rents increased by a more moderate 3% annually between 2015 and 2019, but it is still lower than the 8.3% peak during the epidemic.
For their part, the majority of consumer expenditure is on services. Additionally, they are rising significantly beyond prepandemic averages and by over 4% annually.
These services would include personal care, travel, leisure, and motor insurance and repairs.
Recently, food and energy have also put pressure on prices.
Fortunately, oil prices (CL00) (CL.1) have dropped to a four-year low, and pump prices are also probably going to drop.
Economists say it might take a little longer for prices to decline, but the majority of the increase in food expenses has been caused by a brief surge in egg prices. It takes time for lower prices to appear on grocery price tags, and the cost of crops and other food items has only just started to decline once more.
Watching used car prices is another important factor. For the past four months, they have increased significantly as people who had their cars damaged by severe hurricanes and wildfires purchased new ones.
