What Can Be Expected From Today’s CPI Data Release?

Of all the macroeconomic trends that the world has faced since the beginning of the COVID-19 pandemic over two years ago, inflation has perhaps been one of the greatest causes for concern. Central Banks from Japan to the United States have struggled to adapt their monetary policies to the tidal wave of rising prices; today’s American Consumer Price Index data release could shed some light on whether the Federal Reserve has managed to attain its stated goal of keeping inflation under control.

What Is CPI?

The CPI is the most widely used tool to measure inflation, or its inverse, deflation. This important tool is used to calculate how the price of a wide range of market goods shifts over time.

The Dollar (DX)’s relative purchasing power can also be estimated indirectly with the CPI, by seeing whether an amount of goods can be purchased with more or less money compared to the previously-measured period. The prices of over 80,000 goods are monitored by the Bureau of Labor Statistics every month; when inflation rates are quoted in the media, it is important to understand whether the periods of comparison are months, quarters, or years, in order to accurately understand the time range of price increases. 

However, some raise the concern that the CPI has drawbacks as a measure of the U.S. economy’s health, as it fails to account for the diversity of consumption patterns adopted by American consumers, and may even underestimate inflation. Despite these potential disadvantages, it’s still preferred by professional economists and policymakers alike to judge whether inflation is within the ‘ideal’ two- to three-percent range. Most market watchers believe that today’s CPI data release will reveal that price rises for American consumers have more than overshot this range, and could even set yet another forty-year inflation record. 

Today’s CPI Outlook

The CPI data released in recent months have consistently set records. The first release of the year showed that inflation topped 7% in 2021, and last month’s CPI showed inflation intensifying to nearly 8%. According to White House Press Secretary Jen Psaki, the Biden administration expects that today’s numbers will be ‘extraordinarily elevated.’ 

While inflation may seem nothing new to those who have been following market trends over the past two years, one major factor was named by Psaki during Saturday’s press briefing as the culprit for March’s anomalously rapid price jumps. In addition to continuing supply chain issues, the conflict in Ukraine and the resultant economic sanctions on the Russian Federation have caused energy prices to jump skyward. 

While CPI data is relatively wide-ranging, a more refined price gauge, the Core Personal Consumption Expenditures Price Index, excludes food and energy cost increases as they tend to experience heightened volatility. Analyst expectations are that the discrepancy between this latter inflation measure and the CPI will be shown to have widened over the course of March 2022 due to steep rises in the prices of Natural Gas (NG) and Oil (CL). While the cost of petroleum, a key source of energy for American households, has dropped from its high of over $130 a barrel observed on March 7th, the high prices paid by U.S. citizens at the pump over most of March will still be reflected in today’s inflation figures, estimated by experts to come in at 8.4%. 

How Might Markets React?

An important question that may be troubling many traders at the moment is how U.S. Indices will react to today’s data release. With the Federal Reserve recently having embarked on its first course of interest rate hikes since the pre-coronavirus era, many could be wondering whether yet another increase in inflation could lead the Federal Open Market Committee (FOMC) to further tighten monetary policy.

Traders might have been weighing this possibility yesterday as they pushed key Wall Street Indices down. Over the course of the trading day on Monday, the S&P 500 (USA 500) dropped by nearly 1.7%, and the Dow Jones Industrial Index (USA 30) lost just under 1.2% of its value. Tech and growth stocks, which tend to be especially affected when the dominant market mood takes a turn for the risk-averse, pushed the Nasdaq (US-TECH 100) down by almost 2.2%.

A major source of uncertainty for professionals and lay traders alike is whether markets could be hit by interest rate hikes that turn out to come more quickly than expected. Much rests on discussions held in the highest echelons of the U.S. monetary policymaking apparatus. President Joe Biden has already ordered more than 1 million barrels of Oil a day to be released from government strategic reserves in order to ease the pressure of petrol prices on American pockets. Market watchers will have to wait to see whether this move succeeds in reining in runaway inflation.

Today’s Consumer Price Index data release, expected to present the highest inflation figures seen since 1981, could shake the markets in New York and government halls in Washington, D.C., alike. Traders and investors may need to prepare for further economic volatility before the factors driving such drastic price hikes can be brought under control.