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
- 2.8% (2%)
- 2.7% (2%)
- 2.6% (2%)
- 2.5% (65%) - consensus
- 2.4% (24%)
- 2.3% (6%)
CPI M/M
- 0.4% (6%)
- 0.3% (64%) - consensus
- 0.2% (24%)
- 0.1% (6%)
Core CPI Y/Y
- 2.7% (2%)
- 2.6% (22%)
- 2.5% (67%) - consensus
- 2.4% (8%)
Core CPI M/M
- 0.4% (22%)
- 0.3% (61%) - consensus
- 0.2% (16%)
As always, the focus will be on the Core figures. We can notice that expectations are slightly skewed to the upside with forecasts clustered around 2.5%-2.6% for the Y/Y figure and 0.3%-0.4% for the M/M measure. Therefore, the biggest moves will likely be triggered by deviations from these figures as that would be in the very low consensus.
The Fed doesn't see the labour market contributing to inflationary pressures given the lower wage growth and higher productivity, so it could still cut rates solely based on more inflation easing (barring a quick deterioration in the labour market).
If we get an in-line or soft CPI, there shouldn't be much change in terms of market pricing as the two rate cuts expected by the market are already above the Fed's projection. Nonetheless, we could see a dovish type of reaction, especially in the stock market with stabilising labour market and easing inflation.
On the other hand, a hot report will likely trigger a stronger hawkish reaction following the hot NFP report on Wednesday. In this case, the US Dollar would likely rally across the board and precious metals would drop to new lows. The stock market could also come under pressure.
