US CPI to help drive the market. Key inflation to be released tomorrow in the US

Author: Greg Michalowski | Category: News

The data is expected to moderate

Tomorrow at 8:30 AM ET/1330, the US CPI will be released. With all the focus on inflation since the US employment report, this will be a key release for rates, stocks and the dollar as well.  If it moderates, it could go a long way toward easing fears about the inflation scare, 3 or 4 tightenings in 2018 and the stock market concerns.  Conversely, if it surprises to the upside, the higher yields, lower stocks and 4 tightenings will be back in play.

The expectations are the following:
  • CPI MoM 0.3% vs 0.2% last month
  • Core CPI MoM 0.2% vs 0.2% last month
  • YoY for CPI is expected to decline to 1.9% from 2.1% last month
  • YoY core is also expected to decline to 1.7% from 1.8% last month.
Both the YoY falling away from the 2.0% target would take away some of the inflation fear.

The chart below shows the history of the YoY measure in the tops chart and the MoM changes in the bottom chart. Since 2012, the inflation for the headline and the core have mostly been below the 2% Fed target.  Admittedly, 3 of the last 4 months have been above for the headline, but the core measure has been at or below over the last 9 months.  Tomorrow, both are expected to come in below the 2% inflation target from the Fed.  
 

Now, the reason the YoY numbers are going down is in January 2017, the headline number increased by 0.5%. That will drop out this month, replaced by 0.3% (according to the expectations). For the core, in January 2017, the gain was +0.3%. That is expected to come in at 0.2% tomorrow.

Going forward, however, in February and March the headline number came in at 0.0% and -0.2%.  Assuming higher numbers, in 2018, they will increase the YoY reading. That may be for another day for traders though.

First things first, tomorrow the inflation numbers are supposed to moderate and if so, that could help to lessen some of the inflation fear that gripped the market.   

PS. Also released tomorrow in the US will be retail sales. The expectations is for a 0.2% increase with ex auto and gas up by 0.3%. The control group is expected to rise by 0.4%.  

Also within the report will be real average weekly earnings. They rose 0.9% in December (YoY). The Real average hourly earnings YoY came in at 0.6%.  Keep an eye out for what they do too. 

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