If you’re expecting a reprieve after January’s disappointing inflation report, well….don’t. The February consumer price index is projected to show another monthly leap in prices that keeps annual inflation elevated and the Federal Reserve wary about cutting interest rates in the near term.
More encouraging news is in the offing from retail sales, which probably picked up after a feeble January showing.
And Americans’ perceptions about the economy and inflation likely held steady or dipped in March amid rising gasoline prices and a volatile stock market.
Is inflation expected to go down?
30,000-foot view: After a pandemic-induced spike, inflation has tumbled to about 3% from 9.1% in mid-2022 but progress toward the Fed’s 2% goal has been halting lately. The consumer price index rose 0.3% in January, a bit faster than the recent trend, but that still lowered annual inflation to 3.1% from 3.3%.
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Meanwhile a core CPI measure that strips out volatile food and energy items also accelerated, climbing 0.4% and keeping the yearly rise at 3.9%. While goods prices continued to fall or rise modestly, the cost of services is still increasing smartly, in part because of workers’ healthy pay increases.
The forecast: On Tuesday, the Labor Department is expected to announce that consumer prices overall jumped 0.4% on more expensive gasoline, holding annual inflation at 3.1.%. according to a Bloomberg survey of economists. Nomura and Barclays predict a bigger monthly bump that nudges up yearly inflation to 3.2%.
And core prices probably increased 0.3% as service costs such as rent, car repairs and insurance continued to advance and used car prices dropped more modestly, according to Nomura and Barclays.
Barclays still looks for annual inflation to drift down but the descent could be fitful. By the end of the year, the research firm expects overall inflation to edge down to 2.9% while the core reading falls to 3.1% as wage growth eases only gradually.
You should care because: Americans have consistently labeled inflation their biggest economic concern in an election year. And it is moderating – but in slow-drip fashion. That could lead the Fed to be patient and wait until June or a bit later to cut its key interest rate, a move that would lower borrowing costs for mortgages, credit card and auto and other loans. It also would inject more fuel into the stock market. Stocks have hit record highs on the prospect of lower rates, but have stumbled when the rate cut timetable is pushed out.
Keep in mind the Fed has said inflation doesn’t have to tumble to its 2% target to begin cutting. But officials would like to see a steady decline.
Are retail sales down in 2024?
30,000-foot-view: Retail sales fell sharply in January. Consumers took a breather after a strong holiday shopping season, cold and stormy weather kept many at home, tax refunds were delayed and gas station sales dipped but for a good reason: lower prices. Generally, robust wage growth has allowed consumers to keep spending despite high interest rates, nagging inflation and dwindling pandemic savings.
The forecast: The Census Bureau will likely report Thursday that retail sales rebounded last month, rising 0.8%, according to the Bloomberg survey. And a core measure that excludes volatile items such as autos, gas and food services probably rose 0.4% after a similar-sized decline in January, Nomura says.
You should care because: Consumption makes up 70% of the economy, making sturdy spending the biggest bulwark against a recession in 2024. Economists expect outlays to increase by 1.9% this year, down from 2.2% in 2023, according to a survey by Wolters Kluwer Blue Chip Economic Indicators. But that would still be a fairly solid performance.
How are consumers feeling about the economy?
30,000-foot-view. Consumers’ outlook has improved notably in recent months as inflation has eased, stocks have soared and rate cut prospects have risen, according to the University of Michigan’s consumer sentiment index. But the gauge slipped to 76.9 last month from 79 in January, weighed down by persistent inflation.
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The forecast: Economists estimate the University of Michigan’s index inched up slightly in March. But Nomura is looking for a slide to 75 because of higher gas prices, a volatile stock market and talk of a rate-cut delay, the firm says.
You should care because: Consumers’ views of the economy and their finances tend to affect their spending, which drives the economy. It also could determine how they vote in a presidential election year.
