Food prices among drivers of expected US inflation hike

by Augusta Saraiva

Economists forecast that US inflation probably stayed elevated last month after a large increase in January, adding to evidence that progress on taming prices has stalled.

The consumer price index is seen advancing 0.3% in February after a 0.5% gain at the start of the year. A core measure that excludes the volatile food and energy categories is also expected to increase 0.3%, according to the median forecast in a Bloomberg survey of economists.

Another firm reading, likely driven by gains in prices of goods including food, would further fuel concerns that inflation is staying high while growth is slowing — the dreaded stagflation. Uncertainty about the economic toll from President Donald Trump’s trade wars have tanked stock markets this week. 

“It feels that this could be a lose-lose situation,” said Julien Lafargue, chief market strategist at Barclays Private Bank. “A higher-than-expected reading could fuel the stagflation narrative while a weaker-than-expected print could cement recession fears.”

FOOD PRICES

Grocery prices have risen substantially in recent months, mostly on record-high egg prices due to the spread of bird flu in the country. Other basic items including meat, fruits and sugar also advanced at a stubborn pace at the start of the year. Some economists expect that trend to hold in Wednesday’s report.

“Egg prices continued increasing in February, and wholesale food prices keep increasing at higher speed,” Morgan Stanley economists led by Diego Anzoategui wrote last week, adding that they expect grocery inflation to stay above the pre-pandemic trend at least through the summer. 

SERVICES COSTS

A metric of services costs closely tracked by the Fed is expected to show some reprieve after jumping by the most in a year in January. The so-called supercore services measure — which excludes housing and energy — is seen decelerating on cheaper airfares and medical costs.

Anna Wong from Bloomberg Economics said the February data will reflect a divergence between softer demand for services like hotels and travel and higher goods prices.

“While softer services prices – reflecting weakening consumer demand for discretionary items – move the dial in the right direction, disinflation in goods sectors was already stalling even before President Donald Trump’s tariffs,” she wrote in a note.

Economists will also be closely tracking housing costs, which remain one of the most stubborn categories within the CPI. Citigroup Inc. economists Veronica Clark and Andrew Hollenhorst see a 0.27% monthly advance in shelter prices, a deceleration from January.

Many economists noted that firms tend to raise prices and fees during the first quarter and that could boost the CPI index, although companies are more likely to do it in January than later in the quarter. 

EARLY TARIFF IMPACT?

Some economists expect the February report to show the first signs of the impact from tariffs, specifically the additional levies on imports from China. 

“One driver of our firm inflation forecast is the additional 10% tariff on imports from China enacted in early February,” Bank of America Corp. economists Stephen Juneau and Jeseo Park wrote on March 7.

“China represents a large share of imports for household furnishings, apparel, and electronics,” they said. “If tariffs do not affect this month, it just means that the impact is delayed to future months.”