The consumer price index is expected to show no increase in the report to be issued Wednesday by the Labor Department. But the more trend-worthy annual number is likely to increase from 2.1 to 2.3 percent and indicates that consumer prices around the economy are on a slow but upward trajectory.

A drop in energy prices in March will cause the monthly number to show no increase, but the so-called core CPI, which excludes the monthly volatility of oil and food prices, is expected to rise at least 0.2 percent for the fourth month in a row, supporting a slow rise inflation. The yearly core number will reach above two percent for the first time since March 2017, as year-old price drops in cell phone plans finally exit the statistics monitored by the Labor Department.

Fed President Jerome Powell suspects that online shopping and trade globalization are to blame for the modest price increases around the economy, but whether the U.S. has entered a new internet-fueled inflation paradigm or whether the economic expansion has a long road ahead, tomorrow’s report will show that inflation is creeping up as expected.

Here are five things to watch in Wednesday’s report.

1. It’s not really inflationary, “it was the cell phone plans.”

Core consumer prices will jump from 1.8 percent to around 2.1 percent measured year over year, closing in on the Fed’s target. That’s an atypically big jump, but it’s not due to larger price pressures. In March last year, cell phone providers cheapened unlimited data plans in a race to the bottom, leaving a price cut that has since lingered around in the yearly data. Tomorrow, it will disappear.

March 2017’s 0.1 percent drop will get chopped off the yearly measurement Wednesday and replaced with March 2018’s expected 0.2 percent gain. Hence, the jump in the yearly average.

The yearly numbers will stay around 2 percent for the next couple months as last year’s subdued monthly numbers (April through July 2017 were all 0.1 percent) change up to 0.2’s. It’s a robust sign that inflation, while not running away, is trending up. The Fed should have room for two proposed interest rate hikes later this year.

2. Energy prices will keep the overall CPI number low.

Oil prices are back to 70 dollars a barrel, but last month things were unstable. Prices dipped in the first half of March and moved back up later in the month. The CPI won’t rise because of it, but economists say not to pay much attention to this volatile number.

3. Don’t expect much from steel and aluminum prices.

Economists don’t expect any tariff effects to drive consumer prices Wednesday, for two reasons. Few of the industries affected by tariffs really drive the price index, and few of the tariff-threatened industries have a high share of Chinese imports.

“There’s a lot of ways for the good to get into the economy without a tariff,” said Samuel Coffin, U.S. economist at UBS Macro Research, “for now this looks more like a threat than a real effect on growth.”

Right now, the tariffs only affect some small items in the consumer price index.

4. Without extra spending money, consumers aren’t driving up demand.

Wage growth has been sluggish. Considering the economy’s low unemployment of 4.1 percent 90 months into an expansion, theory says workers should see increased hourly earnings. The last time unemployment was this low, non-supervisor wages grew 4.3 percent from the prior year. Wages for non-supervisors grew 2.4 percent this past year. Low disposable income means demand for goods is low.

This is because employers are bringing in new workers at low wages instead of raising the hourly pay of seasoned employees, said Robert Brusca, president of Fact & Opinion Economics.

“The new people in the labor force are coming off of welfare and getting their first jobs after college, and getting low wages, and these people aren’t going to make all the difference. They are just more shoppers at Walmart and Kmart and the food store,” said Brusca, “they’re not really going to make housing prices all that hot.”

Consumer spending rises when people with jobs get raises, and not when people who don’t have jobs get jobs, said Brusca.

5. Markets expect this.

March inflation should be modest. With the cell phone pricing plans being the big story Wednesday, the CPI report will be predictable. Economists and investors have been expecting the yearly core numbers to jump for a year now, and today’s the day. Don’t expect any market volatility as a result of the CPI release.

The monthly core number isn’t expected to rise because other more temporary price surges have finally been reeled in. Medical prices that came up radically in 2016 and 2017 have started to level off, and any post-Hurricane season inflation in autos is over.

Inflatable by Jack Lawrence used under the CC BY 2.0 license

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