This week’s economic data is set to shed fresh light on the inflation picture as growth fears intensify. The main event is the Consumer Price Index (CPI) report, which will test whether inflation has continued to accelerate or if pressures on consumers and businesses are causing price growth to ease.
Meanwhile, other key releases will add context to the labor market and broader economic uncertainty, with policy challenges looming ahead of a potential government shutdown.
Policy uncertainty is weighing on the economy – stemming from the new administration’s tariff stance and the looming government shutdown, as the current spending law expires on March 14. Shocks related to policy uncertainty act as negative supply shocks, raising prices while simultaneously dampening household consumption and business investment.
Economic research indicates that heightened policy uncertainty can reduce business investment by 2 to 3 percentage points and slow GDP growth by 0.5% to 1%.
Here’s what to watch:
Inflation Expectations Update:The week begins with an update on inflation expectations. The previous reading showed that one-year-ahead inflation is expected to remain around 3.0%, well above the Fed’s long-run inflation target.Small Business Confidence & Job Openings:Survey data on small business sentiment and JOLTS job openings could confirm whether the recent spike in policy uncertainty is weighing on business investment and hiring decisions.CPI and PPI Data:The main event will be the CPI and Producer Price Index (PPI) reports. CPI data has been re-accelerating since September 2024. Although housing inflation has continued to moderate, oil prices, food prices, and insurance premiums have been on the rise. Consumer prices are expected to have increased by 0.3% in February, down from 0.5% in January.Market Implications:Higher-than-expected inflation and rising inflation expectations would likely delay Fed rate cuts, triggering a bond market repricing that could shift yields and mortgage rates higher. Conversely, lower-than-expected inflation, along with averting a government shutdown ahead of the Friday deadline, could have the opposite effect.
Bottom Line:
The upcoming CPI report will be pivotal in determining whether inflation is set to continue its upward trend or if easing pressures will finally materialize as growth concerns mount.
