Investors Believe that Today’s U.S. CPI Report Will Show a Lower Inflation Rate

May 11, 2022

Ahead of April CPI figures due at 12:30 GMT (08:30 EDT), U.S. stock futures are pointing to a rise of 1.0% or more. Analysts are predicting that on-year inflation will be closer to 8.0% than March’s 483-month high of 8.5%.

It is an act of faith based in part on base effects as high month-on-month price changes in the spring of 2021 will be rolling off the year-on-year comparisons. Meantime, inflation news reported around the world today have painted a different picture.

  • Chinese consumer price inflation rose 0.6 percentage points in April to a 5-month high of 2.1%, even as PPI inflation slowed 0.3 percentage points to 8.0%.
  • German CPI inflation last month was confirmed at the preliminary estimate of 7.4%, which represents its highest point since at least 1981. Although the 12-month increase in energy slowed 4.2 percentage points to 35.3%, food price inflation accelerated 2.4 percentage points to 8.6%, and service sector consumer price inflation increased 0.4 percentage points to 3.2%. Core inflation of 3.8% was roughly double the target, and remarks overnight by European Central Bank President Lagarde support speculation that an initial interest rate hike will be undertaken by July and followed by a succession of subsequent up-moves.
  • Portuguese consumer prices jumped more than 2.0% on month in April as such had done in the prior month, lifting the on-year inflation rate to a 349-month high of 7.2%. That compares with 5.3% in March and just 0.5% last June.
  • Romanian CPI inflation of 13.76% last month was up from 10.15% in March and 3.24% in April 2021.

The dollar is lower today, having slipped 0.3% against its weighted DXY index and by 1.8% versus the ruble, 1.0% relative to the Australian dollar, 0.8% against the kiwi, 0.7% vis-a-vis the Swiss franc and Mexican peso, 0.5% vis-a-vis the Japanese yen, 0.4% versus the Canadian currency, 0.3% relative to sterling but just 0.2% against the euro, which has more than a 50% weight in the DXY calculation.

In anticipation of the aforementioned U.S. CPI data, the 10-year Treasury yield has settled back six basis points. Its Spanish and Swiss counterparts also are six bps lower, while those of Italy, Great Britain, and Germany have fallen by 9, 3, and 2 basis points.

A big financial market move today has been in the price of WTI oil, which has advanced 3.5% due to concerns over more limited gas production in the Ukraine war zone. Gold is 0.6% firmer, and Bitcoin’s price has jumped by 1.6% this Wednesday.

There’s been a 25-basis point increase in Bank Negara Malaysia’s policy interest rate that was not foreseen by analysts. This hike to 2.0% from 1.75% marks the first increase since January 2018. Malaysian CPI inflation in April of 2.2% had been a tad low than forecast and matched the lowest level since August 2021. A released statement from the central bank’s Monetary Policy Committee observes that “the unprecedented conditions that necessitated [a record low interest rate during the pandemic] have since abated. With the domestic growth on a firmer footing, the MPC decided to begin reducing the degree of monetary accommodation. This will be done in a measured and gradual manner, ensuring that monetary policy remains accommodative to support a sustainable economic growth in an environment of price stability.” Between May 2019 and July 2020, the policy interest rate had been cut five times by a total of 150 basis points.

The National Bank of Georgia also held a policy review, announcing no change its interest rate of 11.0%. From March 2021 through March 2022, that rate was increased five times by three percentage points in all, including 50 basis points at the prior review in March. In today’s released statement, officials assert, “the gradual increase in the monetary policy rate over the past year has led to tight monetary policy stance. Monetary policy will keep a tightening bias until the risks of rising inflation expectations are sufficiently mitigated.”

China reported a big drop of its forex reserves on Monday. Today it was Japan’s turn to do the same. A $33.9 billion drop Japanese reserves during April raised the year-to-date decrease of reserves to $63.7 billion. A separate Japanese data release showed 2- and 30-month highs in March reached by the leading and coincident indices of economic indicators.

Indonesian consumer confidence fell back in April to February’s level and was 5.4% below January’s 2-year high.

Australian consumer confidence slumped 2.5% on month in May (most in almost 7 year) to a 21-month low.

A 47.6% on-year plunge in Chinese auto sales last month reflects lockdowns to counter Covid. Such was the largest on-year drop since March 2020.

Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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