We get a slew of US price data points this week including factory and import price data. But tomorrow's consumer price inflation will be the key one for markets. This will form part of the puzzle for the Fed’s data dependent policy decision in June. It is worth pointing out that we do get one more CPI release before the next FOMC meeting, with next month’s report released the day before the Fed rate decision.
Having peaked above 9% in the middle of last year, expectations are for headline CPI to print close to 5% in April. The core rate, which excludes volatile food and energy costs, is seen unchanged at 5.6% and easing on a monthly basis. Services inflation is forecast to remain elevated and not decline meaningfully until later in the summer, while core goods prices are expected to stay flat.
Inline prints will be unpleasantly high for policymakers with CPI still running at more than double the Fed’s 2% target. But the headline reading would be at the slowest pace in nearly two years and confirm gradual disinflation, with shelter costs helping this process in the next few months.
The Fed is expected to remain on hold during that time as uncertainty in the banking sector continues to tighten credit conditions and lending standards. This environment could potentially push inflation much closer to target by December as unemployment rises. Certainly, money markets believe this will happen, with close to three 25bp rate cuts by year-end priced in. That said, Friday’s latest US jobs data confirmed an enduring tight labour market with wage growth still very solid. Stronger data will help lift the dollar, though it remains in a medium-term downtrend.
Here are the numbers to know:
