(Bloomberg) — A monthly report on US consumer prices due Tuesday won’t convince Federal Reserve officials it’s safe to begin lowering interest rates, according to Bloomberg Economics.
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The core consumer price index, excluding food and energy, probably rose 0.3% in February, Bloomberg economists Anna Wong and Stuart Paul wrote Monday in a preview of the report. On a year-over year basis, they see core CPI up 3.7%, which would be the least since April 2021.
“Ultimately, we don’t expect the February CPI report to provide clear enough evidence of disinflation to boost the Fed’s confidence to cut rates,” Wong and Paul said. “However, they could have enough confidence as soon as May — our base case for the first rate cut — as both inflation and the labor market cool further.”
Read More: US PREVIEW: Seasonal Factors Suggest February CPI to Be Brisk
Bloomberg Economics also believes the unusual spike in owners’ equivalent rent — an estimate of housing costs and the largest individual component of the CPI — was an aberration.
In January, a 0.6% jump in OER caught forecasters by surprise and threw into doubt the apparent progress made by central bankers in quelling inflation in the second half of 2023. The Bureau of Labor Statistics later attributed some of the jump to a change in how certain data sources are weighted, and not to price increases.
Wong and Stuart said they expect both primary rents and OER to rise by a less-startling 0.4% in February, with increases set to moderate in the following months.
“Market rents suggest both OER and primary-rents inflation should fall throughout 2024, with annual overall shelter inflation falling to 4.0% by the end of the year,” they wrote.
At the same time, falling prices for some goods, led by new and used cars, will continue to drive the moderation in core inflation, Wong and Paul said. Their projections were in line with the median forecasts in a Bloomberg survey of economists.
–With assistance from Vince Golle.
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