CPI Snapshot: Looking for Cooling Inflation Trends

A person pushes a shopping cart through a supermarket in Manhattan, New York, U.S., March 28, 2022. REUTERS/Andrew Kelly

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NEW YORK, June 9 (Reuters) – Economic data due on Friday has market participants eagerly awaiting confirmation that inflation, which has been high for decades, peaked in March and began its long descent to the bottom. of the mountain.

While the Labor Department’s Consumer Price Index (CPI), which tracks the cost to urban consumers of a basket of items, is expected to accelerate to 0.7% from 0.3%, when ‘it is stripped of volatile food and energy products, it seems to cool a nominal 0.1 percentage point to 0.5%.

Year-over-year, consensus is for headline CPI to hold steady at a blistering 8.3% and forecast a “core” CPI of 5.9%, which would mark a welcome drop from 0. .3 percentage points.

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“You’re going to see high turnover, primarily from fuel and food,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Va. “But the base number will probably dampen some of that.”

“It’s a trend in the right direction,” Tuz added.

A lower core reading would be the second leading indicator to show that April’s decline in inflation was no fluke. The first sign was the wage growth element in last Friday’s jobs report.


Resurgence in demand from a shackled global supply chain – whose recovery has been hampered by Russia’s war on Ukraine and China’s recent COVID-related restrictions – has driven prices well beyond the US Federal Reserve’s 2% average annual target.

The central bank has taken action in recent months, raising the target federal funds rate by 75 basis points in its effort to pour cold water on the economy and contain inflation.

Two more interest rate hikes of 50 basis points are expected following the Federal Open Market Committee (FOMC) monetary policy meetings in June and July.

While some economists worry that this sharp tightening could cool the economy towards recession, a wide range of recent data, covering the labor, manufacturing and housing markets, for example, have hinted that the economy is cooling. on its own and could give the Fed – which has pledged to remain nimble in its response to economic data – some leeway to take a more dovish turn this fall.

Federal funds target rate

Even though the core CPI is cooperating with the consensus, price growth remains stubbornly high, significantly outpacing wage inflation. If it persists, this situation can only curb the purchasing power of consumers.

CPI and wage growth

As a result, consumers – who contribute about 70% of US economic growth – are saving less, dipping into savings and buying more plastic, even as sentiment remains weak and inflation expectations high.

“A lot of people are suffering to cover food and energy prices,” Tuz said. “It’s a painful environment there.”

“Savings are down and credit use is up.”

Savings, expectations and consumer credit
High inflation expectations

After Friday’s CPI report, market participants will focus on next week’s producer price data and the Fed’s statement expected on Wednesday after its two-day monetary meeting, at the during which the central bank will implement the second of its three consecutive expected 50 basis point interest rate hikes.

But for now, CPI has the spotlight.

If it shows “incredibly high base number and mitigating base number, the markets might agree with that,” Tuz added.

“We will know tomorrow at this time.”

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Reporting by Stephen Culp; Editing by Lisa Shumaker

Our standards: The Thomson Reuters Trust Principles.

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