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Forecasts for March CPI Report Show More Mixed Signals on Inflation

With progress stalled toward reducing inflation, the March report could further dim the outlook for Fed rate cuts.

Illustration of the Federal Reserve with currency bubbles, depicting inflation

The Consumer Price Index report for March 2024 is expected to show that overall inflation ticked up last month, reflecting the stalling of progress toward reducing upward pressure on prices seen through much of the past year.

However, once volatile food and energy costs are factored out, economists forecast that inflation likely moderated slightly in March, thanks to falling car and airfare prices.

The March CPI report is critical to the outlook around Federal Reserve interest rate cuts this year. After surprisingly strong inflation readings for January and February, investors have already pushed back their expectations for the first rate cut from March to June. In addition, traders in the bond market are looking for the Fed to cut rates between two and three times in 2024, down from the five cuts they expected when the year got underway.

CPI Data and the Fed Outlook

Economists anticipate the overall CPI reading for March to show that consumer prices rose 0.3% on a monthly basis, down from 0.4% growth in February, according to FactSet’s consensus estimates. However, the annual inflation rate is expected to rise to 3.4% from 3.2%. The report is scheduled to be released Wednesday at 8:30 a.m. EST.

While analysts agree that some seasonal noise in data reporting contributed to January and February’s strong inflation reports, chatter is beginning to build about the possibility that the Fed won’t cut rates this year. Another hot reading on inflation could fuel that talk, or at least push expectations for when the Fed will lower rates even further away.

The central bank is “more likely to err on the side of caution by not easing as much as previously believed if we continue to see this type of data,” says Gregory Daco, chief economist at EY. Daco believes overall inflation rose 0.35% on a monthly basis in March.

CPI vs. Core CPI

March CPI Report Highlights

  • CPI report release date and time: Wednesday, April 10 at 8:30 a.m. EST
  • The CPI is forecast to rise 0.3% in March after increasing by 0.4% in February.
  • Core CPI is forecast to rise 0.3% in March after rising 0.4% in February.
  • The CPI year over year is forecast to rise to 3.4% in March from 3.2% in February.
  • Core CPI year over year is forecast to rise 3.7% in March after rising 3.8% in February.

While the expected 0.3% monthly increase in the CPI may be slightly less than last month’s, analysts say it may not be enough to give the Fed confidence that inflation is moving in the right direction. “It needs to be a little lower than that to meet [the Fed’s goal],” says Alejandra Grindal, chief economist at Ned Davis Research. Analysts expect the overall inflation reading to tick up thanks to rising energy and insurance prices, but the core measure is expected to decline.

On the goods side, analysts at Bank of America say falling prices for new and used cars will contribute to that drop. While goods disinflation has been driving inflation down since its peak, Grindal warns that progress may be slower in the months ahead because distortions from the covid-19 pandemic have mostly worked themselves out. “That downside coming from goods disinflation just may not be as strong anymore,” she says. Daco thinks there’s room for improvement: “I still believe there is more disinflation to come from the vehicles side.”

Services Inflation Still Elevated, But Slowing

Analysts expect services inflation to slow slightly in March, but no outright disinflation. “Consumer demand has been relatively resilient,” Daco explains, “so there might be a little bit less downward pressure on core services than previously expected.” He adds that rising insurance costs and sticky housing costs are keeping prices for services elevated. On the other hand, Bank of America analysts say falling airfare and hotel prices will contribute to overall services inflation cooling.

When Will the Fed Cut Rates?

Wednesday’s inflation data comes amid another reshuffling of market expectations for Fed rate cuts. A month ago, bond traders were pricing in a 57% chance of a cut at the central bank’s June meeting, according to the CME FedWatch Tool. Today those odds are down to 51%.

Adding to investors’ uncertainty is the increasingly hawkish tone of Fed officials. “It’s much too soon to think about cutting interest rates,” Dallas Fed President Lorie Logan said last week, citing the January and February’s hot CPI reports and the risk that progress on inflation might stall. US Federal Reserve Governor Michelle Bowman took a similar stance last week, saying additional rate hikes may be necessary “should progress on inflation stall or even reverse.”

Analysts think the reverse is also true. More progress on inflation could give the Fed and investors confidence that easing is around the corner, especially since falling inflation means monetary policy will become more restrictive even without immediate rate cuts. “If we continue to see some disinflation … that does give room for the Fed to cut policy,” Grindal says.

Expectations for June 2024 Federal Reserve Meeting

Probabilities (%) for federal-funds rate level.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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