US #CPI and Core CPI Release

Today at 1.30pm BST we have US CPI and Core CPI data releases which are the most important ones of the week.

The market will mainly be focused on the core reading. A positive deviation on the core figures will help support inflation expectations, translating into dollar strength. A negative deviation however may see further reductions in rate hike expectations and USD weakness.
Description

CPI measures the change in the price of goods and services purchased by consumers. CPI is the most important inflation-related release due to its earliness and broad scope. This CPI release is seasonally adjusted. Consumer prices account for a majority of overall inflation and inflation is important to currency valuation because rising prices lead the central bank to raise interest rates to contain inflation.

Summary

Inflation remains one of the Fed’s primary concerns and reasons for reducing their rate hike expectations to only 2 hikes in 2016. At March’s FOMC press conference, Fed Chair Yellen referred to the recent rise in core inflation as potentially caused by transitory factors, stating that “Core inflation (which excludes energy and food prices) has also picked up, although it remains to be seen if this firming will be sustained”. Since March’s FOMC, rate hike expectations have once again fell to around 50%, inflation data will be a key component to market expectations, and highly influential to Fed members in regards to future rate decisions.

Core CPI m/m is expected to decrease from 0.3% to 0.2% for March, however CPI m/m is expected to increase from -0.2% to 0.2%. Core CPI y/y and CPI y/y are expected to remain unchanged at 2.3% and 1.0% respectively.

US CPI and Core CPI release was also covered in weekly risk events video here.