Inflation in the U.S. might be the rise, but it’s not erupting like Mount Vesuvius.
First came news that worker pay rose more slowly in February. Now it appears the consumer price index probably was on the milder side as well.
The CPI is forecast to increase 0.2% in February, less than half as much as the 0.5% gain in January. The chief reason: Lower gasoline prices.
If the forecasters are right, home buyers and others looking for loans may catch a break. Interest rates USD 10YRS +0.40% are rising, but they’d rise even faster if the CPI or other inflation gauges shot up unexpectedly.
The report will be issued Tuesday morning.
The consumer price index is a good barometer of the cost of living, measuring the prices Americans pay for a broad range of goods and services such as rent, food, gas, doctor visits or eating out.
The CPI topped 2% in 2017 for the first time since 2012, reflecting higher prices for gas, rent, housing, hospital stays and prescription drugs, among other things.
Even if gas and food are stripped out, the CPI is climbing at a 1.8% yearly pace.
The Federal Reserve doesn’t rely mainly on the consumer price index to determine if inflation is high enough to justify an increase in U.S. interest rates. But it plays a critical role, along with the central bank’s preferred PCE inflation gauge.
The PCE is also on the upswing, but it’s running a bit cooler at 1.7% yearly clip.
The Fed predicts PCE inflation will rise gradually in 2018 and meet its 2% inflation target. The CPI is already there, but it’s not expected to go much higher for at least for another month.
For one thing, energy prices have flattened out in February and March after a spurt in January. And the prices of clothes and auto insurance posted unusually large increases in the first month of the year that won’t be repeated.
A bigger advance is not out of the cards, though. Economist Steven Ricchiuto of Mizuho notes that rent and health care often show large increases in February.
The Fed already appears locked in for an increase in U.S. interest rates in March. Softer inflation readings in February could make the central bank less inclined to act more aggressively beyond that. But a strong number would push the central bank even closer to four rate hikes this year instead of the three that the Fed has penciled in.