Latest CPI Report Is a Crucial Inflation Report Card

Inflation back in the spotlight

An S&P 500 on a five-week winning streak. A growing economy. Solid wage gains. And growing consumer and business optimism. These are the ingredients for an emerging Goldilocks scenario for the U.S. economy.

What would help complete that recipe? Cooling inflation, which would stoke investor hopes that the Fed would soon lower borrowing costs. (That said, Fed officials continue to warn that it’s still too early to talk rate cuts.)

The prospects of that economic ideal will be tested on Tuesday with the release of fresh Consumer Price Index data.

Here’s what to expect: Economists have forecast a headline C.P.I. reading of 2.9 percent for January on an annualized basis, its smallest gain since April 2021. Core C.P.I., which strips out food and fuel prices, is expected to come in at 3.7 percent on an annualized basis, down from 5.6 percent in January 2023 — strong progress, but well above the Fed’s 2 percent target.

There are reasons for caution, however. The slowdown has been driven by goods disinflation and lower energy prices. But economists are closely monitoring how attacks by Houthi rebels on ship traffic in the Red Sea could affect commerce costs and push up oil prices.

The cost of crude oil has climbed since the start of the year, though it remains well below the levels hit in the aftermath of the Hamas-led attacks Oct. 7.