Amid all the volatility and unpredictability around US President Trump’s capacity to shock and surprise markets, we get the latest US CPI inflation and PPI data released this Wednesday and Thursday. This will combine to form the next reading of the Fed’s favoured price pressure metric that lands at the end of the month. There may be seasonal adjustment that could modestly skew the figures, but consensus currently expects headline and core CPI m/m prints at 0.3%, and 2.9% and 3.2% respectively y/y.
The monthly core reading is the main one markets look out for and is higher than the 0.17% number needed over a period of time to hit the Fed’s 2% inflation target. Food and energy costs have been rising recently while rents, a key pillar of core inflation, are seen falling which could impact CPI later this year and they take time to feed into the data. It is also likely that further services disinflation is offset by higher goods inflation now that additional tariffs are in the works.
From the Fed’s perspective, its January policy statement did not include language that inflation had made progress to its 2% goal, as was stated in the December update. But Chair Powell stressed this was not meant to send a signal and it was rather just a language clean up. The central bank still says that inflation remains ‘somewhat elevated’Â and that policy rates remained meaningfully restrictive; Powell added that the Fed does not need to wait for inflation to fall to exactly 2% before it can resume rate reductions.
There is very little possibility of a March move at the FOMC meeting and only around a one in four chance of a 25bps cut at its next gathering in May. Markets will price this out if the data is hotter than expected, which will fuel a dollar rally. Tariffs are typically seen as inflationary and will linger in the background, even with cooler data.