I anticipate Headline Inflation will come between 3-3.3% and Core CPI between 4.6-4.7%. I don't see a surprise in Headline CPI, although CORE could surprise to the downside.
Market Reaction to CPI
- If the Headline CPI matches the market's expectation (3.3%), I anticipate that the market will continue its sideways trading pattern. This means that stocks would neither rally significantly nor decline sharply but rather move within a relatively narrow range.
Optimism for a Fed Pause
- For the market to become optimistic about the Federal Reserve pausing its rate hikes in September, the Headline CPI would need to drop below the 3% mark. This would signal lower inflation than anticipated, potentially giving the Fed room to hold off on further tightening.
Reflation Fears
- If the CPI exceeds the market's expectations, it could reignite concerns about reflation. This refers to the idea that inflation could pick up again after a period of slowing, which could pressure the Fed to continue or even accelerate its rate hikes.
Importance of Core CPI
Core CPI, which excludes volatile items like food and energy, tends to be more stable ("sticky"). It's often viewed as a more reliable indicator of underlying inflation trends. A Core CPI reading below 4.8% would be seen as progress in controlling inflation.