CPI Set to Cool, But Will It Be Enough for the Fed?

February 2025 Consumer Price Index (CPI) is forecast to record a soft 0.3% month-on-month rise, down from last month's 0.5%. Year-on-year headline inflation is forecast at 2.9%, down from last month's 3.0%. Core CPI, excluding volatile food and energy prices, is forecast at 3.2% year-on-year, down from January's 3.3%.

Various factors may influence these figures, and they include the continuing trade tensions, along with the possible tariffs impacting the level of prices for consumers. Imposing tariffs on imports from countries like Canada, Mexico, and China would lead to making customers pay additional charges, bringing new inflationary pressure. Also, increasing concern over stagflation—a combination of declining growth and persistent inflation—is influencing attitudes and expectations in the market.

The CPI release will have to respond nervously to financial markets, with potential for equity and fixed-income market volatility as investors reconsider rate expectations. Sell-off opportunity and relief rally are in the works, however, conditional on the read surprising to the upside. The release will be closely watched within the foreign exchange marketplace, also, with direction of US dollar strength depending directly on what is seen regarding rate expectations