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Goldman Sachs forecasts a slower inflation pace in February's CPI data, with core inflation expected to rise 0.17% month-on-month, below the 0.2% consensus. Key drivers include declining used car prices, falling auto insurance costs, and moderating shelter inflation. However, tariffs may add 0.05 percentage points to inflation in sectors like recreation. The report, due March 11, 2026, aligns with a 0.24% monthly core PCE increase, the Fed's preferred metric. The Fed's policy trajectory hinges on whether inflation continues cooling, with markets pricing in a 70% chance of a rate cut by year-end if data supports easing pressures. For markets, the CPI report is critical for assessing Fed policy direction. A weaker-than-expected reading could reinforce expectations of prolonged rate cuts, boosting risk assets like equities and commodities. Conversely, stronger inflation in tariff-exposed sectors might delay policy easing, supporting the USD. Traders should monitor the report's impact on Fed Funds futures and USD/JPY, which often reacts to inflation surprises. For Gulf investors, the CPI data influences USD liquidity and commodity pricing. A weaker USD could benefit Gulf exporters but hurt oil-linked currencies. Regional equity markets may also see flows if Fed easing spurs global risk appetite. Key watchpoints: the report's effect on Brent crude and the Saudi Riyal/USD cross, given the Kingdom's dollar peg.
