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
- 3.8% (4%)
- 3.5% (4%)
- 3.4% (67%) – consensus
- 3.3% (25%)
CPI M/M
- 0.4% (76%) – consensus
- 0.3% (23%)
- 0.2% (1%)
Core CPI Y/Y
- 2.7% (2%)
- 2.5% (6%)
- 2.4% (82%) – consensus
- 2.3% (10%)
Core CPI M/M
- 0.3% (10%)
- 0.2% (88%) – consensus
- 0.1% (2%)
The Core CPI M/M will be the one to watch, as that’s what the Fed members have been focusing on. Fed’s Waller recently said that he would consider a rate hike in September if the monthly core reading surprises to the upside. Unfortunately, that was before the latest surge in oil prices, with WTI crude now trading above the $100 level.
The break of that psychological level triggered a hawkish repricing across the board, with traders now pricing in a 67% chance of a rate hike at the upcoming meeting. I feel like an in-line CPI won’t be enough to steer the market away from expecting a rate hike. If we go into the FOMC meeting with higher probabilities for a rate hike, then the Fed will be forced to hike just to avoid delivering a dovish surprise.
In light of this, I think only a soft Core CPI could give the market some short-term relief. An upside surprise, on the other hand, might exacerbate the risk-off sentiment as the market could start expecting an even more aggressive path for rate hikes.
