April's consumer price index report is expected to show that inflation has already reached a peak, a development that could temporarily soothe markets.
Even with a reprieve in headline inflation, economists say core inflation could stay elevated for months to come. Food and energy costs are not included in core inflation.
The report is expected to show that headline inflation rose in April. In March, there was a whopping 1.2% increase, or an 8.5% gain over the course of the year. The data is due at 8:30 a.m. The time is Wednesday.
The core inflation rate is expected to rise. It was 6.5% on an annual basis in March.
Ahead of the data, the stock market was volatile. The S&P 500 ended the day with a small gain. The index lost 84.96 points.
The benchmark 10-year Treasury yield fell to about 2.99% Tuesday after spiking to 3.20% Monday. Expectations of aggressive Federal Reserve interest rate hikes have caused bond yields to run higher at a rapid pace.
I wouldn't say tomorrow'sCPI matters by itself. The combination of March, tomorrow's and May's data will be the big inflection point, according to Ben Jeffery, a fixed income strategist.
The report has a good chance of being a market mover, no matter what.
I think it will either reestablish the selling pressure we saw or it will be a different story. He said that it will inspire more dip-buying interest for investors who have been waiting for signs that inflation is starting to peak.
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Some investors say the data could signal a turning point if inflation comes in as expected or even weaker.
The market is very focused on trying to divine how much the Fed is going to move.
The hotter the report, the harder the Fed will be in its stance on interest rates. The central bank could raise rates by 50 basis points at each of the next two meetings, according to Fed Chair Powell.
The Fed's response to inflation could cause a recession.
I don't think this is the end of the market's decline, it needs to go down at least 20%. If we get better inflation data, I think 20% could be the bottom. From its high, the S&P 500 is off nearly 17%.
If the inflation data is not as good as we think it will be, then I think the market prices for a recession.
There are two potential risks in inflation data that could prove to be a problem for markets. There are two unknowns around the oil and gas supply strains and price shocks caused by Russia's invasion of Ukraine, and the other is China's latest Covid-related shutdowns and the impact on supply chains.
Either one of these could be a bigger problem than the market is anticipating.
Aneta Markowska said she is expecting a hotter-than-normal report with headline and core inflation rising. She thinks investors should be more concerned with how inflation can decline than with the market's focus.
I think a lot of people are focused on the year-over-year rate slowing, and I think that helps consumers because it looks like real wages will actually be positive for a change in April on a month-over-month basis. If you annualize that, you're running at 6 percent, and that would mean no slowdown.
The central bank assumes inflation will slow to 4% this year and 2.5% next year.
Markowska said that the perception is that inflation problems are supply chain-driven.
I think the ship has left. We are past supply chains. The services sector is what this is. She said that the labor market is the problem. There is a problem everywhere. It is in services. It is in the labor market, and it is not going to go away on its own. We need core inflation to fall to a rate of 0.4% a month and stay there for a while.
According to Sriram, investors should not get too excited about inflation peaking, since how quickly the level comes down is more important.
The Fed needs a weak coreCPI print to be pacified that inflation is coming down.
The energy index was up in March, but it may be less of a contributor to overall inflation in April because gasoline prices fell. Energy will be a bigger issue in May data, since gasoline is rising to record levels again.
Some economists think used-car prices will go down in April, but data she monitors shows increases at the retail level.
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