On Wednesday, the United States Bureau of Labor Statistics’ Consumer Price Index (CPI) report is due to be released. According to top experts in American macroeconomic trends, a drop in the country’s record inflation could be in the cards.
Concerns Over Inflation Mounting
Inflation has been a central concern for U.S. policymakers in recent months, as the recovery from the global lockdowns put in place to combat COVID-19 infections pushed price increases to their highest level since the first Reagan administration. While international travel has, to a large extent, recovered from the nadirs reached in 2020, issues with global supply chains have continued to raise the costs of key goods for both producers and consumers in the United States.
An additional roadblock in the path of bringing inflation levels down to the ‘ideal rate’ of around two percent was created by the effects of the conflict in Ukraine. As the Russian Federation, responsible for sourcing a significant proportion of the Oil (CL) and Natural Gas (NG) needed to keep the global economy running, came under a wide tranche of Western sanctions, energy prices rose across industrialised economies. Oil’s price per barrel rose sharply, reaching a peak of nearly $125 on March 8th.
Accordingly, it may have come as no surprise to market watchers that last month’s CPI data revealed prices for American consumers had increased by their highest rate since 1981, 8.5%. The Consumer Price Index data released on April 12th was the first to include the effects of the conflict in Ukraine, so the ‘headline’ rate, which includes food and energy prices, was especially high. These exceptionally high inflation numbers may have been behind the Federal Open Market Committee’s (FOMC) hawkish turn, which recently raised interest rates for the first time since 2018 after maintaining relatively dovish policies throughout the course of the coronavirus pandemic.
Wednesday’s CPI Report
Top economists have come to the consensus that Wednesday’s CPI report will probably show that inflation slowed down in April. The headline index is expected to come in at 8.1% year-over-year. With Oil having dropped 16.5% from its March peak by the end of April, consumers may have gotten some relief at the pump last month.
However, when excluding the prices of Oil, Gas, and food products, the price rise between April 2021 to last month is even lower, predicted to come in at 6%. Clearly, price increases have moderated somewhat; as recently as December, year-over-year core inflation had been as high as 6.5%.
Despite the relief some may feel if Wednesday’s report shows a deceleration in price increases, the Federal Reserve’s top decision makers may feel differently. According to many, Fed Chairman Jerome Powell has been signalling that the United States’ central bank is willing to go much further with the monetary tools in its chest in order to bring runaway inflation under control. Coming FOMC meetings, such as that expected to be held June 14th-15th, could very well conclude with more rapid interest rate increases, even if such steps come at the cost of reduced Gross Domestic Product (GDP) growth.
While economists might seem to be fairly confident in their predictions as to the contents of the Bureau of Labor Statistics’ report, it is still unclear how markets will react to Wednesday’s release. Investors may move their wealth into safe haven assets like Gold (XAU) and Silver (XAG). Additionally, tech and growth stocks, already on a downward trend on the back of disappointing Q1 earnings reports, may continue to slide. Traders will need to wait and see how April’s Consumer Price Index data points hit major Indices on Wednesday.