US February CPI preview: inflation data in focus as trade tensions mount​

​​​What to expect from February's CPI release

​US inflation data for February 2025 will be released by the Bureau of Labor Statistics on Wednesday, 12 March. Economists project headline Consumer Price Index (CPI) will rise 0.3% month-over-month (MoM), a notable deceleration from January's worrying 0.5% increase.

​If these forecasts prove accurate, the annual inflation rate would cool to 2.9%, down from 3% in January. This would mark the first time since early 2023 that headline inflation has fallen below the psychologically important 3% threshold.

​For core CPI, which excludes volatile food and energy components and is closely watched by the Federal Reserve (Fed), economists anticipate a 0.3% monthly increase. This would translate to a 3.1% annual rate, moderating slightly from January's 3.3% reading.

​The upcoming data will be scrutinised for signs that the disinflationary trend remains intact, particularly after January's figures surprised to the upside. Markets have readjusted their expectations for interest rates following recent economic indicators, with the path to the Fed's 2% target appearing bumpier than previously thought.

Trade tensions threaten inflation outlook

​Recent policy developments have raised concerns about potential inflationary pressures in the coming months. The implementation of 25% tariffs on imports from Canada and Mexico, alongside increased duties on Chinese goods, could significantly impact consumer prices.

​These trade measures may force businesses to pass increased costs onto consumers, potentially creating new inflationary pressures just as the economy appeared to be making progress toward price stability. The timing is particularly challenging as the Fed navigates its policy normalisation process.

​Import-heavy sectors such as consumer electronics, automotive parts, and household goods could see the most immediate price impacts. Industry analysts suggest these tariffs could begin showing up in inflation data as soon as April or May, depending on existing inventory levels and the ability of businesses to absorb costs.

​The combination of these trade frictions with existing supply chain complexities presents a concerning picture for inflation watchers. If sustained, these pressures could undermine the Fed's confidence in the disinflationary trend and potentially delay the pace of interest rate cuts many market participants have been anticipating.

Labour market dynamics and inflation risks

​Immigration policy changes represent another emerging inflation risk factor. Stricter border controls and employment verification requirements could contribute to labour shortages in sectors heavily reliant on immigrant workers, such as agriculture, construction, and hospitality.

​These potential labour constraints come at a time when the job market remains relatively tight despite some recent cooling. A restricted labour supply could push wages higher, particularly in lower-skilled positions, potentially feeding into service-sector inflation that has proven sticky.

​Some economists suggest labour-related price pressures may take longer to materialise but could prove more persistent once established. The services component of core inflation, which the Fed monitors closely, has shown remarkable resistance to monetary tightening thus far.

​With unemployment still hovering near historic lows at 3.8%, the Fed must balance inflation concerns against the risk of overtightening. Recent commentary from Fed officials has emphasised data dependence, making Wednesday's CPI release particularly significant for monetary policy expectations.

Market implications of the CPI release

​Financial markets have displayed heightened sensitivity to inflation data in recent months, with each release capable of triggering significant volatility. A hotter-than-expected reading could prompt a sharp sell-off in both equity and bond markets as investors recalibrate rate expectations.

​The FTSE 100 and other global indices would likely face pressure if inflation surprises to the upside, as this would diminish the prospect of imminent monetary easing. Technology stocks, which are particularly sensitive to interest rate expectations, could bear the brunt of such a reaction.

​Conversely, a cooler-than-anticipated inflation print might spark a relief rally, benefiting growth-oriented sectors and supporting the narrative that January's hot reading was anomalous rather than the start of a new trend. Bond yields would likely retreat in this scenario, potentially easing recent pressure on equity valuations.

​Currency markets will also be watching closely, with the US dollar's trajectory heavily influenced by shifting rate expectations. A stronger inflation reading could bolster the greenback against major currencies like the British pound and euro, while a softer print might accelerate its recent pullback.

Stagflation concerns gaining traction

​The spectre of stagflation – the uncomfortable combination of slowing economic growth and persistent inflation – has resurfaced in market discourse. This scenario represents a particularly challenging environment for policymakers and investors alike.

​Recent economic indicators have shown mixed signals, with manufacturing activity contracting even as service sectors demonstrate resilience. Consumer spending has moderated slightly as pandemic-era savings continue to be depleted, raising questions about the economy's momentum.

​If inflation remains stubbornly elevated while growth metrics deteriorate further, the Fed will face difficult trade-offs between its dual mandate objectives of price stability and maximum employment. This policy dilemma could contribute to market uncertainty and volatility.

​Investors concerned about stagflation risks might consider positioning for this scenario by increasing exposure to defensive sectors, value-oriented equities, and inflation hedges like commodities. Gold trading has seen increased interest as traders seek protection against both inflation and economic uncertainty.

How to trade the CPI release

​The February CPI release presents trading opportunities across multiple asset classes. Consider these approaches to navigate the potential market reaction:

​Prepare for heightened volatility by adjusting position sizes and ensuring appropriate risk management. The reaction to inflation figures has been unpredictable, and sharp market moves can occur in either direction.

​Consider hedging existing positions before the data release. Options strategies or inverse ETFs can provide protection against adverse moves without necessitating the liquidation of core holdings.

​Monitor pre-market indicators closely on Wednesday morning for clues about sentiment. Futures markets and Asian session trading may provide insights into positioning ahead of the data.

​Be prepared for potential false breaks immediately after the release. Markets often exhibit knee-jerk reactions before settling into more reasoned responses as participants digest the full dataset.

​For those looking to take a position based on the CPI reading, various markets offer potential opportunities. Forex trading on major dollar pairs, index trading, and Treasury futures all provide direct exposure to changing inflation expectations.

How to trade US inflation data with IG

1. ​Research inflation trends and economic indicators to form your market view on whether February's CPI will match expectations or surprise to the upside or downside.
2. ​Choose whether you want to trade or invest based on your outlook for inflation and its impact on various markets.
3. ​Open an account with us to access global markets, including indices, forex, shares, and commodities that may be affected by the inflation data.
4. ​Search for the market you want to trade in our platform or app, which offers real-time charting and analysis tools to help inform your decisions.
5. ​Place your trade, using appropriate risk management tools such as stops and limits to protect your position against adverse market moves following the inflation data.

​With spread betting or CFD trading, you can take advantage of rising or falling markets by going long or short. This flexibility is particularly valuable around data releases like the CPI, where markets can move in either direction based on the figures and their implications for monetary policy.

​Our comprehensive platform offers advanced charting with over 30 indicators and pattern recognition tools to help you identify potential trading opportunities before and after the inflation data release. You can also use our economic calendar to stay informed about upcoming events that might influence your positions.

​For longer-term investors concerned about inflation's impact on equity markets, our share dealing service provides access to thousands of global shares and ETFs, including those designed as inflation hedges.