WATCH THIS BEFORE INFLATION REPORT TOMORROW!!!
In a Nutshell
CPI data releases tomorrow at 8:30 a.m. ET, with headline inflation expected to jump from 3.8% to 4.2% and core CPI (ex-food/energy) forecast to edge up to 2.9%. Markets will rally on a 2.9% or lower core print but are likely to sell off if core CPI hits 3.0% or higher, signaling broader price pressures. A hotter-than-expected core number could also raise odds the Fed pauses or even hikes rates at next week’s FOMC meeting.
These notes were generated by AI and may contain inaccuracies.
Tomorrow, Wednesday, June 10th, one hour before the markets open, the CPI data inflation report will be released. The inflation report, like the job report, has been a major focus for the Federal Reserve because they cannot simultaneously address a weak labor market by cutting interest rates while also managing inflation, since cutting rates is inflationary and would cause CPI to rise.
The official website for the CPI release is the US Bureau of Labor Statistics at bl.gov/cpi. This report is released every month, typically between the 8th and the 13th or 14th of the month, usually in the first half of the month. The report is the consumer price index, which tracks month-over-month price changes for specific categories including food, food away from home, food at home, and energy.
The report includes specific line items such as food, food at home, food away from home, energy, commodities, new vehicles, and used cars and trucks. It measures whether prices went up or down from April to May for each category. Once all line items are summed, a single overall number is produced.
Current overall CPI sits at 3.8%. Market expectations are for this to rise to 4.2% for the month of May being reported, representing a 5% increase. The biggest contributor to the current inflation rate is the energy sector due to events in the Middle East.
Core CPI currently sits at 2.8% and is expected to rise only to 2.9%. Core CPI is defined as all items less food and energy. The Federal Reserve cannot control oil prices in the Middle East, making core CPI the more significant metric to watch.
Higher oil prices affect everything including vehicles, apparel, shelter, transportation, and services. These costs eventually factor into all prices. The concern is that even though core CPI excludes energy directly, sustained high oil prices could still push core CPI higher than expected.
Markets are currently bullish with strong higher highs and higher lows, and tend to recover quickly from sell-offs. A recent sharp sell-off occurred due to confirmed news that Iran shot down a US Apache helicopter, viewed as a sign of escalation, yet markets still recovered.
If core CPI comes in at 2.9% or lower, markets are likely to go up. If core CPI comes in at 3.0%, 3.1%, or 3.2% or higher, this would indicate inflation has moved into core categories, likely causing market fear and a sell-off.
Next week the FOMC will make its rate decision. There is currently a 96% probability that the Federal Reserve will pause and not cut rates. If CPI comes in significantly higher than expected, the Federal Reserve could begin considering raising interest rates instead.
No one can predict the future; the market reaction to the data will determine direction. If overall inflation comes in higher than expected, it is already assumed this would have negative implications for markets. The key surprise would be if core CPI significantly exceeds the 2.9% expectation.
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