Global investors will be keeping a close eye on the next set of US CPI data. The Bureau of Labour Statistics will announce the latest US inflation figures for April this week. The CPI data for April 2023 are set to be announced on May 10, 2023, at 8:30 a.m. Eastern Time. The April US inflation report will provide clues as to whether the Federal Reserve will pause rate hikes at its meeting next month on June 13-14.
Back in March, annual inflation was at 5%, while the monthly price increase in March was only 0.1%. Despite declining from a decade-high of 9.1%, inflation is still much higher than the target rate of 2% set by the central bank. The core-inflation data is more important than the headline inflation estimates. However, the core-inflation index, which excludes food and energy and is a closely watched indicator by the Fed increased by 5.6% in March.
Markets expect the inflation numbers to maintain the status quo at 5% in April. This could be primarily on account of rising oil prices in April. OPEC+’s statement on April 2 of an unexpected decline in crude production led to a surge in oil prices.
“I think the March CPI report came in lower than expected, which had the market rallying, but we have to remember that oil was trading at $65 a barrel in March and then the Saudis and OPEC most recently cut production. Part of the reason that the oil prices went down was that the Alaskan Pipeline was able to reopen and for a short period of time they got prices down to $65 a barrel. Now that’s over, and now we’re already back up to $82 a barrel. I think this is a blip and we’ll unfortunately see inflation rise a little bit higher on the next CPI report primarily due to the cost of oil,” says Faron Daugs, Certified Financial Planner, Founder & CEO of Harrison Wallace Financial Group
A sticky inflation and rising core-inflation figures could mean a negative surprise for the markets. In such a case, the Fed will be forced to remain aggressive in its tightening approach and more bad news for the banking sector and economy may trickle in.
If inflation remains modest, the Fed will be hopeful to take a pause and study the impact of no rate hike on the economy before deciding on rate cuts.
Going forward, attention will be focused on the FOMC meeting scheduled in June.
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The US Fed is anticipated to take a break and pause any further rate hikes in June provided incoming data till that time is supportive of their view. Fed expects earlier rate hikes to work with a lag and thus a pause could give them to look at data more closely.
John C. Williams, President and Chief Executive Officer, Federal Reserve Bank of New York is expected to speak, a day before the US CPI data is released on Wednesday.
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