Will the U.S. CPI Report Cause Another Market Storm?
XM Group | Mar 13, 2023 09:41AM ET
Stalling progress to reduce inflation
As the fight against inflation rages on, there is good and bad news. The good news is that inflation in the US is falling. The bad news is that it’s not declining fast enough according to the latest metrics. The consumer price index was up 6.4% y/y in January, down just 0.1 percentage points from December. The decline in core CPI also slowed, but more worrying was the uptick in core PCE inflation, which the Fed attaches the most weight to in its decision making.
The forecasts for February suggest the sticky inflation picture hasn’t altered much since January as month-on-month, both headline and core CPI are expected to have increased by 0.4% - more than double the pace needed to achieve yearly inflation of 2%.
Without some signs in the upcoming report that services inflation is starting to come down more rapidly, investors should not expect any change in the current policy stance. Yet, the sudden collapse of tech lender Silicon Valley Bank (SVB) has already sent panic across Wall Street amid fears of financial contagion to other banks.
Markets saw the Fed funds rate peaking at around 5.6% prior to the SVB crisis but those odds have now fallen sharply to about 5.0%. There could be disappointment if policymakers stick to their guns in 10 days’ time.
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