US CPI year-on-year (%)
The April reading last month came in at 4.9% with the core annual estimate coming in 5.3%. This time around, the former is expected to drop to 4.1% in May with the latter falling to 5.3%. That comes despite expectations of a rise in the monthly estimates of 0.2% and 0.4% respectively.
With base effect adjustments largely clouding the annual estimates, it may be about time that markets start paying more attention to what the monthly figures are telling us. I’ve highlighted that a couple of times since last year but it is well worth reminding once more.
And in Adam’s post here yesterday, there was a neat illustration by EY-Parthenon in highlighting the importance of the monthly readings and how that might impact the inflation trajectory in the months ahead.
In the context of today, it might not matter too much. However, this will be a key sticking point to watch out for as continued strengthening in monthly consumer price inflation will eventually translate to more persistent price pressures down the road. That will make the Fed’s challenge even tougher than it already is.
But as we look towards the FOMC meeting tomorrow, a “pause”/”skip” looks to be where the betting odds are at and it is going to take a major beat on the CPI figures to really get traders to turn their heads.
The dollar, Treasury yields, and risk assets are all going to be intertwined as we get to the key risk event later today and the connection will stay in place all through the Fed policy decision tomorrow.
I reckon even if we do see the inflation numbers today meet estimates, there will be an added cheer/breath of relief across broader markets. And that’s not a positive scenario for the dollar but we’ll see.