(Bloomberg) -- Monthly data on US consumer prices due Tuesday is set to show more disinflation in services following recent declines in goods prices, which will bolster the case for Federal Reserve interest-rate cuts, according to Bloomberg Economics.

The Bureau of Labor Statistics report will probably show the consumer price index, and the core index excluding food and energy items, both rose 0.2% in January, Bloomberg economists Anna Wong and Stuart Paul said Monday in a preview of the release.

“With goods prices having largely normalized since the pandemic, the more important drivers of disinflation this year will be housing rents and other sticky services categories,” Wong and Paul said. “Fed officials say they need to see more evidence that disinflation is broadening beyond goods — and we think that evidence is already here.”

Read More: US PREVIEW: Services to Pass Goods as CPI Disinflation Driver

Inflationary pressures receded quickly in the second half of 2023, driven by outright declines in goods prices. Services inflation moderated as well, though at a slower pace.

The downdraft in price pressures has helped build expectations in financial markets for rate cuts this year, though Fed officials recently have pushed back on the idea of imminent reductions. They have cited a robust labor market as a reason why they can take their time to make sure disinflation continues before commencing with easing.

“We expect January’s report to provide such evidence,” Wong and Paul said. “Inflation in both housing rents and non-housing service categories should moderate to 0.4% in January, compared to last year’s average monthly pace of 0.5%.”

Read More: US CPI Revisions Confirm Inflation Progress at End of 2023

The core CPI measure has been running well above the Fed’s preferred inflation gauge, which is based on Bureau of Economic Analysis calculations of personal consumption expenditures and published later in the month.

At the end of 2023, the spread between the year-over-year rates of change of the two indexes was a full percentage point, more than three times the average over the last 20 years.

Many components of the core CPI measure feed into the core PCE gauge, and the details of tomorrow’s CPI release “will suggest a more favorable reading” for the PCE metric, Wong and Paul said.

The Bloomberg Economics prediction for headline CPI is in line with the median estimate in a Bloomberg survey of outside forecasters, while its prediction for core CPI is slightly below the consensus.

On a year-over-year basis, Bloomberg Economics sees the headline index rising 3% and the core index up 3.7%, versus consensus estimates of 2.9% and 3.7%, respectively. A 2.9% reading on the headline index would mark the first below 3% since early 2021.

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