What to focus in Mar. CPI? Will core CPI go up?
As the market digests the non-farm payrolls report last Friday, the US dollar index $Invesco DB US Dollar Index Bullish Fund(UUP)$ rose by nearly 0.6% on Monday.
Institutions predict that the March CPI will drop significantly from 6% to 5.2%.
However, the core CPI, which excludes energy and food prices, is expected to grow 5.6% YoY, an increase from the previous month, and could serve as a basis for further rate hikes by the FOMC.
Here's what to expect compared to the prior month's reading:
1. What to focus in March CPI?
1) Housing costs
The housing costs (rental prices), an important driver of inflation in recent months, may reverse downward.
Powell previously stated that housing costs are expected to show a turning point in the second half of the year, but there are no clear signs yet.
2) Services
Inflation in the service sector remains challenging.
Although the US labor supply and demand tension has eased slightly, the Fed's JOLTS report shows that the number of job seekers for each vacancy has increased slightly, but it is still at a low level in recent years.
Nearly one-third of the new non-farm jobs in March were in the service sector, which could keep prices of service products under pressure.
2. Rate hike expectations in May
1) CMEgroup: 25bps in May and rate cut in July
According to the lastest data from cmegroup, there are 70% probablity of 25bps rate hike in May.
2) Bob Schwartz, a senior economist at Oxford Economics: 25bps in May
He stated that
although this round of rate hikes is nearing the end, Fed is still expected to raise rates by 25 bps in May, as inflation remains far above the 2% target and the labor market remains healthy, with no reason to worry.
3) St. Louis Fed President Bullard: expect terminal rate of 5.50%-5.75%
However, Fed officials remain firm. The most hawkish St. Louis Fed President Bullard stated in a recent speech that he hopes the terminal rate will reach 5.50%-5.75%. So far, no Fed official has mentioned the possibility of a rate cut.
In summary, the market consensus for rate hike in May is 25bps. However, the rate hike expectation may revise after the release of CPI. Investors need to keep an eye on March CPI.
How do you expect March CPI?
Will the core CPI climb up?
Will CPI continue to drop?
Leave your comments to win tiger coins~
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The ideal case is one more 25bp in May. May reported CPI drops below 5%. Fed pauses rate hike and we all watch CPI continuing to fall.
A new bull market has started.....
considering the SPR needs refilling at some stage, with refineries and wells sitting far below previous numbers, and the recent OPEC production reduction. These take months to ramp up again. Also, the $300B added to the balance sheet via the banking sector bail out. Surely, these factors will seep into inflation figures in due course or when demand rises down the road, retaining the heightened energy related inflationary costs. Just my thoughts, if anybody has anything to add, that would be great. Thank you.
CPI dropping? [Doubt] Serious? How come items like housing, food, petrol, and many others continue to be expensive? [Facepalm]
So, with these black swans events, coupled with inflation on the table, CPI would continue to drop. 🤔