The US Bureau of Labor Statistics releases its March consumer price index report on Wednesday. Economists are expecting a 3% increase in the CPI report, a decrease from the 4% reported in February and on par with January’s numbers.  

Here are five things to watch for in the report.

  1. Core inflation. 

Economists and the Federal Reserve pay special attention to Core CPI, which excludes volatile oil and food prices. The core forecast for March is 0.2% to 0.3%, which is lower than the 0.4% reported in both February and January, which is a sign of a slowing down inflation, and it is what the market is looking for. 

  1. Shelter 

Shelter has been a troublesome index for a good part of the last year. Rent has been high and it is generally a sticky component. February’s shelter rate was 0.4%, which was lower than the high 0.6% in January, but it is expected to cool down and lose some momentum in March, to reflect the lower rent numbers. Lodging away from home is expected to slow down as well. This keeps inflation elevated. 

  1. Other Important Data   

The Fed looks at a combination of reports to make decisions regarding its mandate of stabilizing prices. In addition to Core CPI, the Fed looks closely at the Core Producer Price Index which is due to be released on April 11, by the Bureau of Labor Statistics. And to the Personal Consumption Expenditure report due to be released on April 26, by the US Bureau of Economic Analysis, said Oscar Munoz Chief US Macro Strategist at TD Securities.   

  1. Markets Reactions

If CPI performs cool, as forecasted, the stock market will have more activity. On Tuesday, the stock market was somewhat stagnant in anticipation of the CPI report. However, the markets are generally optimistic in reaction to a way better-than-expected employment report. The Dow Jones Industrial Average fell 0.2% and the Nasdaq rose 0.1%. It uneventful trading day in anticipation of the CPI report. 

  1. Federal Reserve’s Reaction

The Fed is in a wait-and-see mode right now to see the direction of the general economy. Between now and June, the Fed will look at inflation reports to decide on cuts, but given the last two months of firm performance, March’s report will set a direction for the Fed rate cuts, but there is a bit of uncertainty. 

“There is a 60% chance of a Federal Reserve rate cut in June, which is a little bit surprising the strength of the recent jobs report,” said James Knightly Chief International Economist at ING Financial Markets LLC.