US expected to report strong consumer price increases in February

Consumer prices in the United States are expected to rise at a solid pace in February, despite high rental housing costs, but economists are divided on whether the data will be enough to convince the Federal Reserve to raise interest rates again next week, following the failure of two regional banks.

The Labor Department report on Tuesday, which is also expected to show goods inflation picking up in part due to an expected rebound in used car prices, will be released amid financial market turmoil caused by the failures of Silicon Valley Bank in California and Signature Bank in New York, which forced regulators to take emergency measures to restore trust in the banking system.

It will also be issued a week before the Fed begins a two-day policy meeting, and it will come on the heels of a report released last Friday that showed a still-tight job market but slowing wage increases. Despite the turmoil in financial markets, economists said Tuesday’s data was still crucial for policymakers.

“If the Fed meeting was today, then you’d have to say the Fed is not going to do anything,” said James Knightley, chief international economist at ING in New York. “If the actions from the Fed, Treasury and the FDIC (Federal Deposit Insurance Corporation) help to calm markets, then you’d have to say that a 25-basis-point hike is still the most likely outcome.”

According to a Reuters poll of experts, the Consumer Price Index (CPI) likely grew by 0.4% last month after increasing by 0.5% in January. This would reduce the year-on-year growth in the CPI to 6.0% in February, the smallest year-on-year increase since September 2021. In the year to January, the CPI increased at a 6.4% annual rate.