Key Points:
- Two major US inflation reports will be released this week.
- Core inflation likely rose by 0.2 percent in February before the Middle East conflict escalated.
- Retail gasoline prices saw their biggest weekly jump since Hurricane Katrina.
- Asian and European markets brace for the economic fallout from rising oil costs.
Financial markets are bracing for a crucial week of economic data. Two major US inflation reports are set for release just days after a disappointing February jobs report shook investor confidence. These new numbers will give economists a clearer picture of how fast prices are rising across the country.
On Wednesday, the U.S. government will release the consumer price index. Experts expect this report to show that core inflation, which ignores unpredictable food and energy costs, rose by a modest 0.2 percent in February. However, this data only captures the economic mood before the recent outbreak of war in the Middle East.
Friday brings the Federal Reserve’s favorite inflation tracker, the core personal consumption expenditures index. Economists predict this January data will show a hotter 0.4 percent increase. Because this number is older, traders might ignore it if Wednesday’s newer report shows that inflation is actually cooling down.
The escalating conflict between the US, Israel, and Iran casts a dark shadow over all these predictions. The fighting has severely disrupted regional oil refineries, sending global crude prices soaring. Every day Americans are already feeling the pain. Retail gasoline prices just experienced their biggest weekly spike since Hurricane Katrina hit the Gulf Coast in 2005.
This sudden jump at the pump will almost certainly drive overall inflation higher in March. Because annual inflation remains stuck above the Federal Reserve’s target of two percent, policymakers will likely refuse to lower interest rates during their upcoming meeting next week.
The rest of the world is also watching the oil shock closely. In Asia, countries heavily reliant on imported energy fear that sustained high prices will crush economic growth. Meanwhile, European leaders are analyzing fresh manufacturing data to see if their fragile industrial sector can survive the rising cost of fuel.
