It’s arguably the biggest data release on the calendar. US inflation data is published on Wednesday at 13.30 BST and will tell us whether price pressures are subsiding or still sticky. A slower pace of price increases will keep the good vibes in the market going. That means a bid for stocks and gold, but not USD. Stubborn inflation could bring back hike talk and hurt risky assets, while giving the greenback a

The latest consumer price data is expected to show a mild slowdown after a run of surprisingly strong prints kicked off 2024. US exceptionalism has seen the solid labour market endure for longer than many had thought, while a streak of hot inflation readings also confirmed that the economy was more robust.

But a softer than forecast NFP report for April, with benign wage growth figures, has brought some hope to Fed policymakers. Chair Powell recently hinted at the May FOMC meeting that policy was in a good place, though he was mildly concerned about the lack of progress on price pressures. Other policymakers have expressed similar sentiments. Certainly, they want to see a number of months of progress in the disinflation trend to be confident of hitting the 2% inflation target.

Details of the report

Headline inflation is expected to fall one-tenth to 3.4% from 3.5% in March. The monthly headline CPI figure is seen ticking one-tenth lower to 0.3%. Focus will be on the core print as this strips out volatile food and energy costs. The year-on-year figure is forecast at 3.6% from 3.7%, while the monthly reading is predicted to drop to 0.3% from 0.4%. The latter is still too high for the Fed as 0.2% m/m figures are required over a number of months to bring inflation back to the 2% target.

PMI data points to prices coming in at a slower pace during April, but energy prices could support headline inflation. The heavily weighted shelter inflation should continue to shape the overall pace and direction of CPI. But going forward, slowing demand is likely to present further evidence of a gradual softening in prices across the economy.

Some economists have highlighted that the annual figures might benefit from favourable base effects in this week’s data. However, this won’t be seen again until August, so further progress on falling prices may prove tricky in the next few months.

Market Reaction

Money markets currently price in roughly just under two 25bp rate cuts for this year. The first move is predicted to come in September, with around a 62% chance of that taking place.

Markets will obviously be wary of the recent hot streak in the price data.  But lower-than-expected data could hit the dollar harder. This is because it has shown a tendency to asymmetrically bearish reactions to soft data and is still relatively overbought. Stock market bulls could respond positively and head closer to all-time highs.

The flip side and a hotter report could see the greenback push higher while gold and equity markets get sold.