We get the key release of the week today with the latest US consumer price figures. This is now probably the single most important data for global markets. The headline annual CPI number is expected to fall to 8.1% from the 40-year high of 8.5% in March. This would be the first time the headline figure has fallen since August last year. Is this a major psychological moment for markets? Have we finally reached “peak inflation”?
Breakeven forecasts for the next five and ten years are dropping sharply, below the significant 3% level. Other measures, for example the New York Fed’s latest survey of consumer expectations, have also showed a down tick.
The longer-term question beyond this is really the speed at which prices might return to 3% which is the top of the Federal Reserve’s target band. Geopolitical tensions and China’s zero-Covid policy will continue to pressure supply chains. Tight labour markets could also see a wage growth spiral. But it will certainly be a major shock if the headline continues to rise. This would see further selling in stocks and a bid to the dollar.
There will be much focus on the core reading which is forecast to fall to 6.1% from 6.5%. This data excludes food and fuel which continue to be roiled by the Ukraine conflict. Monthly figures have actually dropped in each of the last two months, but economists polled by Bloomberg predict a month-on-month rise. Of course, this does not help the “peak inflation” narrative. On the flip side markets will take another fall very positively.
Here are the key numbers to know ahead of data release:
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