CPI Data Expectations: Analyzing February US Inflation

• Annualized Consumer Price Index in the US is expected to decline to 6.0% in February.
• Core CPI is forecast to edge lower to 5.5% YoY in February from January’s 5.6%.
• Hot US CPI is critical to initiating a turnaround in the US Dollar against its major rivals.

The Consumer Price Index (CPI) data release for February, published by the US Bureau of Labor Statistics (BLS), is scheduled for March 14 at 12:30 GMT. The US Dollar (USD) has entered into a downward spiral following the latest mixed US labor market report and the US banking stress, which have revived the dovish US Federal Reserve (Fed) expectations. 

The United States (US) inflation report will be the last high-impact economic data that will be published ahead of the March 22 Federal Reserve policy meeting.

What to expect in the next CPI data report?

On an annualized basis, the Consumer Price Index data is forecast to decline to 6.0% and the Core CPI, which excludes volatile food and energy prices, is also expected to edge a tad lower to 5.5% from 5.6% registered in January.

Meanwhile, the headline CPI data is seen easing to 0.4% MoM in February, compared with a 0.5% increase reported in January. The Core CPI is likely to hold steady at 0.4% MoM in the reported month. 

The US CPI data will hold the utmost relevance, as the Federal Reserve remains committed to bringing down inflation back to its 2.0% target. Further, it’s a ‘blackout period’ for the Fed policymakers ahead of the March 22 meeting, and therefore, the inflation data will have a strong market impact, as it helps the Fed determine the future policy path.  

Economists from Wells Fargo agree with the consensus and expect headline inflation numbers to remain high this time around: “We look for another monthly increase of 0.4% in the overall CPI in February, which would put the YoY rate at 6.0%. We still see inflation set to grind lower, but the process is likely to be bumpy and take time. Despite some directional improvement over the past couple of quarters, prices are still growing well above the Fed's 2% target, and the tight labor market suggests that there are still inflationary pressures that could forestall a full return to 2% inflation.”

When will be the Consumer Price Index report and how could it affect EUR/USD?

The Consumer Price Index data report is scheduled for release at 12:30 GMT, on March 14. A softer-than-expected reading could strengthen the renewed dovish Fed rate hike expectations. 

Federal Reserve Chief Jerome Powell, during his testimony in the US Congress last week, endorsed a case for bigger rate hikes should the incoming data warrant faster tightening. However, the US banking rout combined with mixed employment data old cold water on a bigger Fed rate hike outlook.

Goldman Sachs revised down its Fed rate hike outlook, now stating that the Federal Reserve will not deliver any rate hike at its March 22 meeting. Meanwhile, JP Morgan called on for a 25 bps March Fed rate increase. 

The Silicon Valley Bank (SVB) collapse saga prompted traders to reassess their bets for the US interest rate trajectory, with rate cuts by end-2023 now priced in.

In case of a disappointing CPI print, the US Dollar will see a fresh leg lower, allowing the EUR/USD pair to extend its uptrend toward the 1.0800 level. Conversely, a surprisingly hotter US CPI print could save the day for the Greenback bulls. 

The US CPI data is likely to stir the market and ramp up volatility, irrespective of divergence from the expected readings, prompting traders to grab short-term opportunities around the EUR/USD pair.

Dhwani Mehta offers a brief technical outlook for the major and explains: “EUR/USD has turned south after failing to find acceptance above the flattish 50-Daily Moving Average (DMA) at 1.0726 on the daily sticks. The Relative Strength Index (RSI) is pointing lower while defending the midline, suggesting that the retracement could be shortlived.”

Dhwani also outlines important technical levels to trade the EUR/USD pair: “On the upside, recapturing the 50 DMA barrier is critical to resuming the uptrend. The next stops for Euro bulls are seen at the monthly top of 1.0749 and the 1.0800 round figure. Alternatively, further retreat in the EUR/USD pair could expose the horizontal 21 DMA support at 1.0637, below which the road toward the 1.0600 mark could be a smooth one for EUR/USD sellers.”

CPI data related content

• US Inflation Forecast: Easing only slowly, still sticky – Previews by 10 banks
• Gold Price Forecast: XAU/USD needs softer United States CPI to take out $1,919 barrier
• US Inflation Preview: Five scenarios for trading the Core CPI whipsaw within the SVB storm

About the Consumer Price Index

The Consumer Price Index released by the US Bureau of Labor Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of USD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or Bearish).