A big inflation report comes. What to expect

Wednesday’s report could provide mildly encouragement news as concerns grow that President Donald Trump’s tariff policies will exacerbate inflation.

The February consumer price index is projected to show a 0.3% increase across a wide range of goods and services across the world’s largest economy. This projection is held in both the measurement and core index of all items that exclude volatile food and energy prices.

On an annual basis, headline inflation and core readings are 3.2%, 0.1 percentage points lower than January.

The good news is that these prices represent a steady but very slow drawdown in inflation over the past year. The bad news is that both are well above the Federal Reserve 2% target, and are likely to keep the central bank on hold again when it takes place next week.

“We look forward to a wide range of slowdowns with a wide range of core products and services,” Morgan Stanley economist Diego Anzo Kategoi said in a memo. “Why is it still rising? (1) we expect the prices of used cars to rise due to past wildfires (2) (2) certain goods and services will exhibit residual seasonality in February, and (3) we believe that airfare inflation is rising in February due to supply constraints.”

The big question right now is where things are heading from here.

Trump’s tariff movements have sparked market concerns about both rising inflation and easing economic growth. Longer periods of high prices could potentially be on the sidelines of the Fed’s historically adapted to the inflationary side of the dual mission of price stability and full employment.

But Federal Reserve Chair Jerome Powell and his colleagues have shown that in their view, tariffs have historically been a one-off price increase and are not a fundamental inflation driver. If this is the case again, policymakers may continue to lower prices as the market is forecasting this year by examining price blips from trade policies.

Goldman Sachs economists hope that the Fed will be on hold until the policy appears clearer, and then expects it will likely drop the central bank’s benchmark lending rate by half points later this year.

“While we see further expansion of the pipeline through rebalancing in the automobile, home rentals and labor markets, we expect a boost from offsetting from catch-up inflation in healthcare and escalating customs policies,” the company said in a memo.

The Bureau of Labor Statistics will release the CPI report at 8:30am ET.