What To Expect From Wednesday’s Report On Inflation

Inflation likely started off 2025 by continuing to run too hot for comfort, with price increases still gnawing away at the buying power of household budgets. 

A report from the Bureau of Labor Statistics Wednesday is expected to show the cost of living, as measured by the Consumer Price Index, rose 2.8% over the last 12 months through January, down from 2.9% in December, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal.

A downtick in line with expectations would break a three-month streak of increases in annual inflation but would still be running well above pre-pandemic levels when the CPI typically ran at or below 2%.

Should the forecasts prove correct, the inflation data would suggest inflation has been stuck in somewhat high gear for months after falling significantly in the first half of 2024.

“The January CPI report is likely to show that inflation remained stubbornly strong at the start of 2025,” Sarah House and Aubrey Woessner, economists at Wells Fargo Securities, wrote in a commentary.

The Last Mile to the Fed’s Inflation Goal Is Proving to Be the Hardest

Inflation has cooled dramatically since mid-2022 when the CPI rose at 9.1% a year, a four-decade high.

The Federal Reserve raised its benchmark interest rate to push up borrowing costs on all kinds of loans, cool down the economy, and bring inflation down to its goal of a 2% annual rate. But the path down to 2% has hit some roadblocks, and many economists believe Donald Trump’s policies could completely derail it.

Less than a month into the Trump Administration, the president has imposed tariffs on foreign trade and has promised more to come. Tariffs could push up prices on all kinds of products Americans buy from abroad, potentially setting off a new round of high inflation.

Economists at Deutsche Bank estimated in an analysis Monday that tariffs announced by the Trump administration so far could push inflation, as measured by Personal Consumption Expenditures, up two entire percentage points for 2025 depending on how much of their cost merchants pass on to consumers.

Paying Close Attention to the Core

January’s data will provide some idea of inflation’s trajectory.

When gauging inflation trends, economists and policymakers at the Fed pay especially close attention to “core” measures of inflation, which exclude prices for food and gas. Although crucial for household budgets, those items can change for reasons having little to do with broader inflation trends.

The median forecast calls for core inflation to rise 3.1% over the last 12 months, down from 3.2% in December.