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
3.9% (9%)3.8% (23%)3.7% (54%) – consensus3.6% (12%)3.3% (2%)
CPI M/M
0.9% (2%)0.8% (5%)0.7% (23%)0.6% (53%) – consensus0.5% (16%)0.4% (3%)
Core CPI Y/Y
2.9% (5%)2.8% (23%)2.7% (60%) – consensus2.6% (12%)
Core CPI M/M
0.5% (3%)0.4% (40%)0.3% (48%) – consensus0.2% (9%)
Elevated energy prices have pushed headline inflation back above the 3.0% mark. Inflation was elevated before the war started though and this latest shock just added more upside risk. I don’t think today’s data is going to change much for the market unless we get significant deviations from the expected numbers.
For context, the annual Core PCE rate (which is what the Fed targets) has been sticky near the 3.0% level since 2024 and recently rose to the highest level since December 2023. Also, let’s not forget that the Fed has been missing its 2% target since 2021. Fed’s Hammack recently said that there are concerns among businesses that an inflationary mindset is starting to become entrenched in people’s minds.
In the markets, it’s been kind of consensus that the Fed has abandoned the 2% target and now focuses more on keeping it in a 2-3% range like the RBA. With such expectations it could be very hard to get inflation sustainably back to the 2% target without a more significant slowdown in the economy. The problem is that the Fed has been focusing more on the labour market and the soft landing, which had the side-effect of indirect financial easing through stock markets.
This article was written by Giuseppe Dellamotta at investinglive.com.