CPI Preview: Will Weak Inflation Data Provide Further Relief To Markets?

The highly anticipated U.S. consumer price index (CPI) inflation report for June, set to be released on Wednesday, takes the spotlight as the most significant economic event of the week.

Traders are now anxiously awaiting what is likely to be the most critical data reading for the Fed’s policy path ahead.

The CPI report comes on the heels of conflicting economic data for the job market, including outstanding ADP private sector employment growth of 497,000; lower-than-expected nonfarm payrolls (209,000 versus 225,000); and stronger wage growth.

While a rate hike in July is already widely expected, the market remains uncertain about the possibility of two rate hikes this year. Currently, the chances of another rate rise in September or November are valued at 22% and 34%, respectively.

US June CPI Inflation: Forecasts

• Headline CPI at 3.1% year-on-year (YoY): Economists anticipate the annual U.S. headline inflation rate to further ease in June, dropping from 4% to 3.1%. This would mark the 12th consecutive month of declines and the lowest reading since March 2021. On a monthly basis, the headline CPI is expected to show a faster pace of growth at 0.3%, compared to the 0.1% recorded in May.

• Core CPI at 5% YoY: Analysts project a slowdown in the annual U.S. core inflation rate for June, with a decline from 5.3% to 5%. If realized, this would be the lowest level since November 2021. On a monthly basis, the core CPI is expected to show a slight deceleration in the rate of increase, going from 0.4% to 0.3%.

Chart: Will the US CPI Continue to Fall?

What Was the Market Reaction to Previous CPI Readings?

The headline CPI came in below market expectations for the last three inflation reports.

• On April 12, 2023, the annual inflation rate for March came in at 5%, below than the expected 5.2%. The core CPI was 5.6% YoY, as predicted. On that day, the SPDR S&P 500 ETF Trust SPY lost 0.4%. Novo Nordisk A/S NVO was the best-performing stock among large caps, up 3.3%, while JD.com, Inc. JD fell 7.7%. Tech stocks performed poorly, with the QQQ Invesco Trust QQQ down 0.9% and Tesla Inc. TSLA leading losses, down 3.4%, according to Benzinga Pro data.
  
• On May 10, the annual inflation rate for April edged down to 4.9%, below than the predicted 5%. The core CPI also ticked down 5.5% YoY, as expected. Tech stocks rallied, with the Nasdaq 100 Index up 1.1%, while the broader S&P 500 Index was 0.5% higher. Snowflake Inc. SNOW emerged as the best performer for the session, up 5%, followed by Alphabet Inc. GOOG GOOGL up 4.1%. Airbnb Inc. ABNB was the worst performer, down 11%.
  
• On June 13, the annual inflation rate for May plunged to 4%, slightly below market expectations of 4.1. The core CPI also ticked down 5.5% YoY, as expected. Core CPI ticked down to 5.3% as expected. Freeport-McMoran, Inc. FCX was the top performer, up 5.3%, followed by Nvidia Corp. NVDA up 3.9%. Petroleo Brasileiro S.A. – Petrobras PBR was the laggard, down 5.1%. The S&P 500 and the Nasdaq 100 rose by 0.7% and 0.8%, respectively.

Read More: We Are On A ‘Golden Path’ To Lower Inflation Without Recession, Fed’s Goolsbee Says

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