Ballooning inflation expectations

-  CPI seen edging higher on goods prices 
-   Core PCE forecast to remain firm 
-   Middle East conflict driving oil volatility 
-   Energy prices add uncertainty for policy path

By Harry Daniels
LiveSquawk News
@HarryDaniels71

10 March 2026 | 18:30 GMT

This week, inflation data will take centre stage, with both the US CPI and Core PCE price index reports due.

On Wednesday, the Bureau of Labor Statistics will publish February CPI figures. Economists polled expect the headline rate to rise 0.3% m/m, up from 0.2% previously, leaving the annual rate unchanged at 2.4% y/y. Core CPI is forecast to increase 2.5% y/y, also in line with the prior reading.

Citi analysts noted that while services inflation has cooled, firmer goods price growth is likely to keep core inflation above the Federal Reserve’s target.

“Some goods prices may still experience stronger start-of-year price increases in February. Some of this effect may be mechanical, reflecting that average prices in February would still increase relative to average prices in January if January price changes occurred later in the month,” said Citi economist Veronica Clark.

Last month’s outturn surprised to the downside, with headline CPI rising 0.2% m/m, a tenth below forecasts. The softer reading was largely driven by the core component, with medical care and hotel prices among the main drags. Food inflation also moderated, both for food consumed ‘at home’ and ‘away from home’.

On Friday, the BLS will release January PCE data, which includes the Fed’s preferred Core PCE deflator. Barclays said its translation of the CPI and PPI prints pointed to a 0.34% m/m (2.9% y/y) increase in headline PCE inflation, and a firmer 0.43% m/m (3.1% y/y) rise in the core measure.

Developments in the Middle East have stoked fears that inflation could accelerate over the coming months.

Nine days into the US–Israel conflict with Iran, several OPEC+ producers have paused or slowed oil production. Experts estimate that the region’s producers have shut roughly 1.9 million bpd of crude refining capacity due to the conflict.

QatarEnergy, one of the world’s largest LNG exporters, declared force majeure on some LNG deliveries earlier this month following Iranian drone attacks on its facilities.

The Strait of Hormuz, a critical shipping route for global energy supplies, has effectively been closed for much of the past week amid fears that tankers could be targeted. This has pushed spot oil prices sharply higher, with Brent crude briefly topping USD 120 per barrel on Monday.

Energy prices have since eased after US President Donald Trump said that “I think the war is very complete, pretty much”, adding that the US was “very far ahead of schedule”.

Deutsche Bank said the President’s comments helped calm market fears that the conflict could evolve into a prolonged energy shock. However, the timing of any resolution remains uncertain. Trump also said that “we haven’t won enough” and suggested the conflict was unlikely to end this week. Analysts also questioned Tehran’s willingness to de-escalate.

Federal Reserve officials are now in their communications blackout period ahead of the 17–18 March FOMC meeting. However, several policymakers had previously flagged the risks posed by higher energy prices.

New York Fed President John Williams characterised oil primarily as a risk factor for the inflation outlook rather than an automatic trigger for tighter policy.

Minneapolis Fed President Neel Kashkari said geopolitical developments and the surge in oil prices had added uncertainty to the inflation outlook and made the policy path less clear. He added that the persistence of supply disruptions would be key, suggesting that the single rate cut he had previously pencilled in for 2026 was now less certain.

For policymakers, the central question will be whether the inflationary effects of the recent energy shock prove temporary or more persistent.