A crucial report Wednesday is expected to show little progress against inflation

A
closely
watched
Labor
Department
report
due
Wednesday
is
expected
to
show
that
not
much
progress
is
being
made
in
the
battle
to
bring
down
inflation.

If
so,
that
would
be
bad
news
for
consumers,
market
participants
and
Federal
Reserve
officials,
who
are
hoping
price
increases
slow
enough
so
that
they
can
start
gradually
cutting
interest
rates
later
this
year.

The
consumer
price
index,
which
measures
costs
for
a
wide-ranging
basket
of
goods
and
services
across
the
$27.4
trillion
U.S.
economy,
is
expected
to
register
increases
of
0.3%
both
for
the
all-items
measure
as
well
as
the
core
yardstick
that
excludes
volatile
food
and
energy.

On
a
12-month
basis
that
would
put
the
inflation
rates
at
3.4%
and
3.7%,
respectively,
a
0.2
percentage
point
increase
in
the
headline
rate
from
February,
just
a
0.1
percentage
point
decrease
for
the
core
rate,
and
both
still
a
far
cry
from
the
central
bank’s
2%
target.

“We’re
not
headed
there
fast
enough
or
convincing
enough,
and
I
think
that’s
what
this
report
is
going
to
show,”
said
Dan
North,
senior
economist
at
Allianz
Trade
North
America.

The
report
will
be
released
at
8:30
a.m.
ET.

North
said
he
expects
Fed
officials
to
view
the
report
pretty
much
the
same
way,
backing
up
comments
they’ve
been
making
for
weeks
that
they
need
more
evidence
that

inflation
is
convincingly
on
its
way
back
to
2%
before
rate
cuts
can
happen.

“Moving
convincingly
toward
2%
doesn’t
just
mean
hitting
2%
for
one
month.
It
means
hitting
2%
or
less
for
months
and
months
in
a
row,”
North
said. “We’re
a
long
way
from
that,
and
that’s
probably
what’s
going
to
show
tomorrow
as
well.”

To
be
sure,
inflation
has
come
down
dramatically
from

its
peak
above
9%
in
June
2022.
The
Fed
enacted
11
interest
rate
hikes
form
March
2022
to
July
2023
totaling
5.25
percentage
points
for
its
benchmark
overnight
borrowing
rate
known
as
the
federal
funds
rate.

But
progress
has
been
slow
in
the
past
several
months.
In
fact,
headline
CPI
has
barely
budged
since
the
central
bank
stopped
hiking,
though
core,
which
policymakers
consider
a
better
barometer
of
longer-term
trends,
has
fallen
about
a
percentage
point.

While
the
Fed
watches
the
CPI
and
other
indicators,
it
focuses
most
on
the
Commerce
Department’s
personal
consumption
expenditures
index,
sometimes
referred
to
as
the
PCE
deflator.
That
showed

headline
inflation
running
at
2.5%
and
the
core
rate
at
2.8%
in
February.

For
their
part,
markets
have
grown
nervous
about
the
state
of
inflation
and
how
it
will
affect
rate
policy.
After
scoring
big
gains
to
start
the
year,
stocks
have
backed
off
over
the
past
week
or
so,
which
have
seen

sharp
swings
as
investors
tried
to
make
sense
of
the
conflicting
signals.

Earlier
this
year,
traders
in
the
fed
funds
futures
market
were
pricing
in
the
likelihood
that
the
central
bank
would
start
reducing
rates
in
March
and
continue
for
as
many
as
seven
cuts
before
the
end
of
2024.
The
latest
pricing
indicates
that
the
cuts
won’t
start
until
at
least
June
and
not
total
more
than
three,
assuming
quarter-percentage
point
increments,
according
to
the
CME
Group’s

FedWatch
calculations.

“I
don’t
see
a
whole
lot
here
that
is
going
to
move
things
magically
the
way
they
want
to
go,”
North
said.

There
will
be
a
few
key
areas
to
watch
in
Wednesday’s
report.

Beyond
the
headline
numbers,
trends
in
items
such
as
shelter,
airfares
and
vehicle
prices
will
be
important.
Those
areas
have
been
bellwethers
during
the
current
economic
cycle,
and
moves
either
way
could
suggest
longer-term
trends.

Economists
at
Goldman
Sachs
expect
outright
declines
across
air
travel-related
items
as
well
as
vehicle
sticker
prices,
and
see
smaller
shelter
cost
increases,
which
make
up
about
one-third
of
the
CPI
weighting.
A
New
York
Fed
survey
released
Monday,
however,
showed
a
sharp
uptick
in
expectations
for
rental
costs
over
the
next
year,
which
is
bad
news
for
policymakers
who
frequently
have
cited
decelerating
housing
costs
as
the
cornerstone
to
their
easing
inflation
thesis.

Similarly,
the
National
Federation
of
Independent
Business
survey
for
March,
released
Tuesday,
showed
confidence
among
small
businesses
at
its

lowest
level
in
more
than
11
years,
with
owners
citing
inflation
as
their
top
concern.

“Inflation
is
cumulative,
and
that’s
why
prices
still
feel
high,”
North
said. “People
still
can’t
believe
how
high
prices
are.”

Gas
prices
also
could
play
an
important
role
in
the
CPI
release
after
rising
3.8%
in
February.
Though
the
gasoline
index
is
relatively
unchanged
over
the
past
two
years,
it’s
still
up
more
than
70%
from
April
2020
when
the
brief
Covid-driven
recession
ended.
Food
is
up
about
23%
during
the
same
period.