Live Updates: Inflation Expected to Remain Stubborn

Economists think that the Consumer Price Index most likely climbed 3.4 percent in March from a year earlier, up slightly from 3.2 percent in February. But that increase would include a jump in gas prices.

Analysts tend to focus on an inflation measure that strips out fuel and food prices, both of which are volatile, for a better sense of the underlying trend. That “core” measure is expected to have climbed 3.7 percent from a year earlier, slightly less than 3.8 percent in February. That would be the coolest annual reading since early 2021, and most likely a positive sign for central bankers.

This week’s inflation figures come at a critical juncture for the Fed. Central bankers are hoping to confirm that warmer-than-expected inflation figures at the start of the year were just a seasonal quirk — not evidence that inflation is getting stuck well above the 2 percent inflation target.

While the Fed officially targets Personal Consumption Expenditures inflation, a separate measure, the Consumer Price Index comes out earlier and includes data that feeds into the other metric. That makes it a closely watched signal of how price pressures are shaping up.

Policymakers have made it clear that they want to see further evidence that inflation is cooling before they cut interest rates. Fed officials raised borrowing costs to 5.3 percent in 2022 and early 2023, which they think is high enough to meaningfully weigh on the economy. Central bankers forecast in March that they will cut interest rates three times this year.

But Fed officials do not want to cut rates before they are confident that inflation is on track to return to normal. Lowering borrowing costs too early or too much would risk allowing price increases to pick back up. And if households and businesses come to expect inflation to remain slightly higher, officials worry that could make it even harder to stamp out down the road.

That threat of lingering inflation has become a more serious concern for policymakers since the start of the year. Inflation has flatlined in recent months after months of steady declines, raising some alarm at the Fed and among forecasters. Going into the year, investors expected the Fed to cut rates sharply in 2024 — to about 4 percent — but have dialed back those expectations. Investors now expect just two or three rate cuts.

Many economists think that the strong January and February inflation readings could be a fluke: Companies may have waited to pass along price increases until the start of the year, among other factors. And analysts see several fundamental reasons that inflation could cool throughout 2024.

Economists at Goldman Sachs wrote this week that they see “disinflation in the pipeline” this year in part because they expect car prices to cool and key rental housing prices to ease, even as a pickup in health care inflation partly offsets that.

Laura Rosner-Warburton, a senior economist at MacroPolicy Perspectives, said she thought that inflation could come down even faster than the Fed expected, allowing officials to start their rate cuts this summer as they try to avoid squeezing the economy too much and risking a recession.

“I don’t think you wait too long, because at that point it’s too late and you’ve put the soft landing in jeopardy,” she said.

But other economists are warier.

Deutsche Bank analysts called this week’s inflation data “a critical determinant of the timing and magnitude” of rate cuts, saying that a combination of stronger-than-expected inflation and still-solid economic growth and hiring suggests that the bar for cutting rates should be higher.