The CPI measures inflation by tracking changes in the price levels of a market basket of consumer goods and services. The upcoming report is of particular interest following three consecutive months where inflation data exceeded market expectations. Analysts currently project a slight moderation in inflation rates for April, which could have consequential implications for monetary policy and financial markets.
CPI Preview: What To Expect
For April, economists expect the CPI to show a year-on-year increase of 3.4%, a slight deceleration from March’s 3.5%. On a month-to-month basis, the increase is anticipated to slow to 0.3% compared to 0.4% previously. The core CPI, which strips out the more volatile costs of food and energy, is also expected to reflect a similar downtrend. The forecast suggests a drop from 3.8% to 3.6% on a year-on-year basis, marking the lowest annual core inflation rate since April 2021. Similarly, the monthly increase in core CPI is expected to decelerate to 0.3% from the previous month’s 0.4%.Goldman Sachs economists that the core CPI will continue to show disinflationary trends in the coming months, forecasting monthly core CPI inflation to hover between 0.25% and 0.30% before decreasing to about 0.2% by the end of 2024. The year-over-year core CPI is projected to stabilize at 3.5%, and core Personal Consumption Expenditures (PCE) inflation, another key indicator watched by the Federal Reserve, is expected at 2.7% by December 2024.
The CPI data typically plays a significant role in influencing market dynamics, more so than the Producer Price Index (PPI). However, the real implications for financial markets will likely emerge once analysts review both the CPI and PPI reports. Notably, today (at 8:30 am ET) is a rare occasion where US PPI data is released the day prior to CPI data. “PPI + CPI data have a very strong correlation. PPI leading the way for CPI numbers historically. Thus expect the market to react more significantly than usual on any miss on expectations,” renowned crypto analyst Ted (@tedtalksmacro) warned today.Today is a rare occasion where US PPI data is released the day prior to CPI data. PPI + CPI data have a very strong correlation. PPI leading the way for CPI numbers historically. Thus expect the market to react more significantly than usual on any miss on expectations. — ted (@tedtalksmacro)
How Will Bitcoin React?
The Bitcoin and crypto markets have shown notable sensitivity to inflation figures and the US Federal Reserve policy over the past months. Ted highlighted the importance of the upcoming inflation data, indicating that a slowdown in inflation could bolster risk assets like Bitcoin.
He via X:This sentiment is by Alex Krüger (@krugermacro), who succinctly captured the market’s sentiment: “CPI in line or soft: higher, CPI hot: lower, BTC is back to trading macro news.” This perspective underscores the prevailing market theory that softer inflation could lead to more accommodative monetary policies, which are typically favorable for risk assets like Bitcoin. At press time, BTC traded at $61,628.Inflation data is centre-stage.[…] Expect volatility, however, this is the first time in a little while where we are likely to see inflation data slow. That’ll be good for risk assets like Bitcoin if true and we could be on the verge of leg higher there.