Heads up for US data due Wednesday - CPI for May - preview

Author: Eamonn Sheridan | Category: News

Couple of brief previews of the US data due 12 June 2019 - CPi for May

  • at 1230GMT
  • CPI could mildly decelerate after a couple of months in which the year-ago rate picked up. 
  • On its own, a change in base effects should drive CPI down to 1.6% y/y. 
  • Seasonal price pressures should be fairly tame. 
  • Gasoline prices fell a little in May over April and the year-ago rate slipped from about +3¼% in April to -1½% in May with just under a 6% weigh in CPI. 
We look for headline CPI to slow two tenths to 1.8% in May
  • on the back of a mild 0.1% seasonally-adjusted monthly increase
  • softer monthly increase is largely the result of the normalization in energy prices, which were a major driver to the upside in recent months
  • food prices to remain largely subdued in May, but flag an upside risk. Recall food prices were flat in April, on an nsa basis, following four consecutive double-digit increases
Core inflation
  • should remain steady at 2.1% y/y, reflecting a firm 0.2% m/m advance. 
  • Although we pencil in a softer 0.2% m/m increase in core services, we expect a long-delayed rebound in core goods at 0.2%. 

Also, TD on the implications for the Fed outlook:
  • With the Fed pointing to low inflation (albeit temporary according to some members) as a possible cause - alongside developments in trade - to reconsider the Committee's interest rate outlook, we will be watching CPI data closely. Further to this, the curve is peddling an aggressive easing bias this year. Taken in tandem with the broad USD's correlation to US data surprises (and relative to G9 surprises as well), the USD will be sensitive to data that especially reaffirms this positioning bias in rates
  • The limiting factor we think is that the Fed is in the media blackout period, so we are more cautious in trying to push an aggressive USD move one way or the other ahead of the decision next week - where we think it will be less likely the Fed changes policy.

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