US CPI: A 0.4% MoM Core read should allow the Fed to stay on hold, but may not hit the Dollar just yet – ING

Today’s CPI release in the US is arguably the biggest risk event of the week. Economists at ING discuss how Core CPI numbers could impact the Dollar.

Small deviations in core inflation can have huge implications

The median consensus estimate for the MoM core CPI read – which will effectively move markets – is 0.4%, with estimates ranging from 0.3% to 0.5%. A 0.4% MoM print (translating into a 5.2% core YoY rate) is also our economics team's call and one that would in our view allow the majority of FOMC members to favour a hawkish hold over a 25 bps hike tomorrow. 

It would probably take a 0.3% read to price out the residual 23% implied probability of a hike tomorrow, meaning that the Dollar does not need to fall much on a consensus print today.

The spectrum of market reaction is much wider in the event of a 0.5% MoM core inflation read. We think the odds would likely swing in favour of a hike tomorrow, and markets could push their implied probability above 50%, sending the Dollar higher across the board. The most visible consequence would probably be another jump in USD/JPY and a potential break above the 140.90 end-of-May recent highs.

See – US CPI Banks Preview: Headline inflation is moderating, but underlying persists