In February, consumer inflation was probably high, and increasing fuel costs will intensify the situation.

• According to Dow Jones, economists predict that consumer inflation will reach a 40-year peak of 7.8%.
• The Federal Reserve will meet next Tuesday and Wednesday, and the consumer price index is the final inflation release beforehand.
• According to economists, the CPI peak, which was anticipated in March, may occur later in the spring due to fluctuations in oil prices.

The consumer price index for February will be the final indicator of inflation before the Federal Reserve's meeting next week, and it is expected to be very high.

According to estimates from Dow Jones, economists anticipate that headline inflation increased by 0.7% last month, which is equivalent to 7.8% on an annualized basis. This is higher than the 0.6% increase recorded in January on a year-over-year basis. However, when excluding energy and food, the core CPI was expected to rise by 0.5%, which is lower than January's 0.6% gain. Core inflation is projected to be 6.4% year over year, up from 6%. The CPI report will be released on Thursday at 8:30 a.m. ET.

The last major economic report before the Fed's two-day meeting starting Tuesday is crucial for markets, and it is widely predicted that the central bank will raise interest rates by a quarter point from zero, marking the beginning of a series of expected rate increases.

On Tuesday, the Fed will focus on the consumer price number rather than the producer price index release.

Michael Schumacher of Wells Fargo believes that the market will react more to an upside miss than a downside miss, although it is the final big data point before the Fed, so it cannot be ignored.

Higher gas prices begin to trickle in

The recent increase in gasoline prices should be included in the data, with more of the run-up appearing in March and April. Economists had initially predicted that inflation would peak in March, but now they believe it could occur later in the spring. On Wednesday, the national average price for a gallon of unleaded gasoline reached a record $4.25, an increase of 60 cents in a week and nearly 80 cents over the past month, according to AAA.

Stephen Stanley, chief economist at Amherst Pierpont, stated that gasoline prices increased slightly in the last days of February, causing my headline CPI forecast to rise by 0.1% to +0.8%. However, the majority of the pain will be felt in March and April.

Stanley predicts that the Consumer Price Index (CPI) for February will increase by 7.9% compared to the previous year. He anticipates that March's CPI will be at least one percentage point higher, approximately 9%.

Stanley stated in a report that he anticipates the energy price increase to be short-lived, allowing for relief by midyear, provided that the conflict in Ukraine is resolved quickly and other oil and gas providers can replace Russia's sanctioned exports.

NatWest Markets chief U.S. economist Kevin Cummins initially predicted that inflation would be driven by the service sector this year, but now it seems that energy will be the main driver, at least in the short term.

Earlier this week, oil surpassed $130 per barrel, but on Wednesday, it was trading at approximately $109 per barrel.

On Wednesday, oil prices dropped sharply due to a report that the United Arab Emirates, an OPEC member, was considering increasing production. However, analysts predict that as long as the Ukraine conflict persists, Russian oil will be affected, which may keep prices high.

The Fed and inflation

Cummins believes the Fed should proceed with its March rate hike and may do more before summer, as the economy can handle higher rates, and the Fed is more concerned about inflation than growth at present.

If oil prices were to move sharply higher, CPI could get very hot quickly. For example, if oil hits $200 per barrel, CPI could be at 9.7% by April. Additionally, the price of other goods could also be affected, causing inflation to rise even further. At $125 per barrel, Cummins said inflation could be 8%.

The core month-over-month increase in the November report is the important number to monitor. If it is lower than the previous month, it is a positive sign, but if some components of core inflation are pushing it higher, it could be concerning for the Fed.

Cummins stated that the last two months' core inflation rate was 0.6%, but if it reaches 0.4%, it would be considered a victory. He anticipates the Fed to predict four to five rate hikes in its upcoming economic projections, which will be released on Wednesday.

If the semiconductor shortage eases, vehicle prices may stabilize, but the cost of services and rents is still predicted to increase.

Rents are not expected to decrease. In fact, they have increased by 0.4%. Additionally, there are delays in the housing market, and home prices are exceptionally high. The rental vacancy rate is low, and the labor market is strong, which is likely the most significant factor.