US Inflation Report To Take Centre Stage

The U.S. consumer prices report will likely take center stage today as market analysts expect to see how it could affect the US Federal Reserve’s (Fed) monetary policy. In the past few weeks, macroeconomic data releases have been underwhelming for some economists that had expected a pivot regarding borrowing costs by the US central bank during summer. Today (May 15), the  CME FedWatch Tool gives a 49.7% probability for a rate reduction after September’s Fed board meeting.

US CPI April 2024 Report

The US Department of Labour Statistics will publish CPI inflation data for the month of April on Wednesday afternoon. Economists suggest that US CPI inflation could fall to 3.4%, on an annualised basis, in April while they expect it to remain steady at 0.4% on a month-to-month basis. Core CPI inflation is likely to drop to 0.3% according to forecasts.

ING economists noted in their report that “while markets have taken stock of the seemingly cooling US jobs market,  data this week may indicate that the inflation picture remains more uncertain and still too hot for the Fed to revamp strong dovish communication. The dollar has shown some tendency to asymmetrically bearish reactions to US data after the latest CPI print, so risks could look a bit skewed to the downside if one believes there are equal chances of an upside or downside surprise in inflation this week. In practice, inflation has mostly surprised on the upside recently and we suspect there are smaller chances of a lower print.”

Fed’s Chair: US Economy Performs Well, Inflation Lacks Progress

Delivering a speech at the Foreign Bankers' Association's Annual General Meeting in Amsterdam, the Fed’s Chair Jerome Powell said that the US economy has been performing very well, accompanied by a very strong labour market.

Powell noted that “inflation in Q1 2024 was notable for the lack of further progress,” reiterating that “we did not expect a smooth road on inflation, we have to be patient and let policy do its work.”

Discussing the interest rates’ issue, the Fed’s head mentioned that “don't think it's likely that the next move would be a rate hike, more likely that we would hold policy rate where it is.”

Eurozone HICP April 2024 Report

Eurostat will release the HICP inflation report for the eurozone on Thursday. According to forecasts, HICP inflation is expected to remain steady at 2.4% on an annualised basis in April while the month-on-month reading will likely come in at 0.6%. Core HICP inflation is likely to come in at 2.7%, on a yearly basis.

The European Central Bank (ECB) inflation target is around 2%. As inflation data and interest rates’ policy are closely connected, Commerzbank’s analysts suggested that the ECB has limited scope for cuts. In their report, they note: “However, there is a huge underlying structural inflationary pressure that will drive inflation in the coming years. The central bankers will therefore only have a window of opportunity for interest rate cuts in the coming months, which we believe will close in the spring of next year. The ECB's room for maneuver for further interest rate cuts will be limited as high inflationary pressure then becomes increasingly visible."

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