Investors are eagerly awaiting the release of US inflation data, due on Wednesday, as the Federal Reserve looks to keep price pressures under control.[0] According to the Survey of Consumer Expectations by the New York Federal Reserve, the median prediction for inflation rate in a year is a 4.4% increase, which is a decline from the 4.7% forecast in March. The anticipated inflation rate for the upcoming 12 months is approximately 4.4%, which remains significantly higher than the expected rates of 2.9% for the next three years and 2.6% for the next five years, as per the respondents’ predictions. However, consumers anticipate that inflation will remain sticky in coming years, estimating that inflation will hover around 2.9% three years from now and 2.6% five years from now.[1] In contrast, the most recent economic projections of central bank policymakers anticipate a decline in inflation to 2.5% in the upcoming year.[1]
The reports on consumer and producer price inflation, which are due to be released on Wednesday and Thursday respectively, could have a significant impact on the outlook for interest rates.[2] Excluding food and energy prices, inflation is predicted to increase by 5.5% compared to the previous year in April. This marks a deceleration from the 5.6% surge observed in March on a “core” basis.[3] It is anticipated that the core price increments will reach 0.4% on a monthly basis.[3] Despite the possibility of a favorable US inflation reading on Wednesday that indicates the Fed is successfully managing price pressures with high interest rates, financial markets may still experience a downturn.
There is a growing list of signs that economic momentum is slowing under the surface and higher interest rates are cutting into household purchasing power. Despite the growing employment rate, the number of available job positions has decreased.[4] The decreasing rates of resignations and sluggish wage increase indicate that employees do not possess the same level of assurance in the job markets as before.[4] And credit markets have tightened as the list of US regional banks struggling to calm investor worries continues to grow.[4] The Senior Loan Officer Opinion Survey—on tap next week—should provide an update on lending practices in the US, where tighter standards and weaker demand for commercial and industrial (C&I) and consumer loans are expected to have continued.[5]
The CPI’s annual rate, which peaked at around 9% last year and remained the highest in four decades, has dropped to below 6% in recent months due to inflation.[6] The question facing investors is how much further will inflation fall and at what pace?[6] Looking ahead, some analysts think the trend for inflation remains lower, even if the pace at which it declines isn’t as quick as the Fed would like. They are forecasting inflation to be in the 3%-4% range by the end of the year.
Oil prices edged lower on Tuesday, handing back some of the previous session’s strong gains in cautious trading ahead of the much anticipated US inflation report.[0] Meanwhile, PayPal cut its outlook for annual adjusted operating margin and its shares fell 11%.[7] Credit tightening was apparent in a Fed poll of lending officers on Monday.[5] The initial quarterly survey indicated a decrease in demand for loans, increasing concerns about a possible recession.[8]
In conclusion, US inflation remains a concern for Federal Reserve officials, and US price pressures, while easing, have been sticky.[9] But there are growing signs that economic momentum is slowing under the surface and higher interest rates are cutting into household purchasing power.
0. “Dow futures fall 125 pts; caution ahead of consumer inflation data By Investing.com” Investing.com, 9 May. 2023, https://www.investing.com/news/stock-market-news/dow-futures-fall-125-pts-caution-ahead-of-consumer-inflation-data-3076975
1. “Americans bracing for higher inflation in the long term, NY Fed survey shows” Fox Business, 8 May. 2023, https://www.foxbusiness.com/economy/americans-bracing-higher-inflation-long-term-ny-fed-survey-shows
2. “Gold Price Latest – $2,000/oz. Support Stands Firm as US Inflation Reports Near” DailyFX, 9 May. 2023, https://www.dailyfx.com/news/gold-price-latest-2-000-oz-support-stands-firm-as-us-inflation-reports-near-20230509.html
3. “Inflation, Disney, debt ceiling: What to know this week” AOL, 7 May. 2023, https://www.aol.com/inflation-disney-debt-ceiling-know-152357703.html
4. “U.S. Inflation Continues to Slow as Credit Risks Build” Action Forex, 6 May. 2023, https://www.actionforex.com/contributors/fundamental-analysis/499901-u-s-inflation-continues-to-slow-as-credit-risks-build/
5. “USDJPY Oil outlook Two trades to watch” FOREX.com, 9 May. 2023, https://www.forex.com/en/market-analysis/latest-research/usdjpy-oil-outlook-two-trades-to-watch/?amp
6. “April CPI Forecasts Show Inflation Improvement Slowing to a Crawl” Morningstar, 8 May. 2023, https://www.morningstar.com/articles/1156073/april-cpi-forecasts-show-inflation-improvement-slowing-to-a-crawl
7. “Stock Market Today: Dow Dips Ahead of Inflation Data, Debt Ceiling Meeting” The Wall Street Journal, 9 May. 2023, https://www.wsj.com/livecoverage/stock-market-today-dow-jones-05-09-2023
8. “Stocks Slump Ahead of Inflation Report; Dollar Up: Markets Wrap” Yahoo Finance, 9 May. 2023, https://finance.yahoo.com/news/asia-stocks-poised-mixed-open-223953399.html
9. “This Week’s CPI Report Could Ignite Massive Volatility” Seeking Alpha, 7 May. 2023, https://seekingalpha.com/article/4601176-cpi-report-could-ignite-massive-volatility