What is the distribution of forecasts for the US CPI?
The ranges of estimates are important in terms of market reaction because when the actual data deviates from the expectations, it creates a surprise effect. Another important input in market’s reaction is the distribution of forecasts.
In fact, although we can have a range of estimates, most forecasts might be clustered on the upper bound of the range, so even if the data comes out inside the range of estimates but on the lower bound of the range, it can still create a surprise effect.
CPI Y/Y
- 4.0% (10%)
- 3.9% (32%)
- 3.8% (36%) – consensus
- 3.7% (20%)
- 3.6% (2%)
CPI M/M
- 0.3% (1%)
- 0.1% (3%)
- 0.0% (22%)
- -0.1% (36%) – consensus
- -0.2% (36%)
- -0.3% (1%)
Core CPI Y/Y
- 3.0% (4%)
- 2.9% (39%)
- 2.8% (57%) – consensus
Core CPI M/M
- 0.4% (2%)
- 0.3% (36%)
- 0.2% (60%) – consensus
- 0.1% (2%)
- 0.0% (2%)
The only data point that will matter is the Core CPI M/M which is expected at 0.2%, so you can forget all the rest. Fed’s Williams said that he will consider rate hikes if monthly core inflation (using the PCE measure) runs above 0.2% in the second half of the year. Fed’s Waller, yesterday, made it clear that he won’t wait for such a long time and today’s report will be enough for him to vote for a rate hike in July in case the data beats forecasts. Waller has been a great leading indicator since 2021.
If the data beats forecasts, the probabilities for a rate hike at the upcoming FOMC meeting will likely rise above 50% and the Fed will be forced to follow through to avoid a dovish surprise. This should translate in another risk-off wave considering the US-Iran crisis running in the background. On the other hand, if the data comes in line or even below expectations, then we will likely see the odds for a July hike dropping and that will likely trigger some risk-on in the short-term, although it might not be as strong as it would have been without the US-Iran conflict.
