The inflation statement will be needed for the approach of Fed policy

June 14, 2023: Inflation data will show that the price surges bedeviling consumers for the past two years are delaying down.

The query, though, will be whether that deceleration will convince Federal Reserve officials that they can stop raising interest rates and let the U.S. economy breathe on its own for a while.

On Tuesday, the consumer costs index will be released at 8:30 a.m. According to the Dow Jones consensus assessment, ET is expected to show that all-items inflation increased just 0.1% last month, equating to a 4% annual rate. CPI is forecast to rise by 0.4% and 5.3%, which removes the volatile food and energy components.

Those digits could encourage policymakers that inflation is headed in the right direction after it peaked above 9% in June 2022.

“The most promising thing is the year-over-year growth rates are going to come down pretty sharply,” said Mark Zandi, chief economist at Moody’s Analytics. “The headline digit will feel good; it will be encouraging, showing inflation is moving in the right direction. More fundamentally, I think inflation is moving in the right direction.”

Indeed, inflation has come a long way since it began surging in the spring of 2021. Pandemic-related factors such as clogged supply chains, outsized demands for goods over services, and trillions in monetary and financial stimulus sent inflation to its highest level since the early 1980s.

After a year of insisting inflation wouldn’t last, the Fed in March 2022 started what would be a series of 10 interest rate hikes. Since then, inflation has slowly dropped, but still far away from the central bank’s 2% target.

Tuesday’s report will convince Federal Open Market Committee policymakers to reflect a rate hike this week as they await incoming data and decide the longer-term policy trajectory.

“Inflation is coming in, and they might get a number that comforts them that things are moving in the right demand,” Zandi said. “They don’t need to raise rates again.”