The economic landscape is in for a deep dive examination. On the macro calendar, important US Consumer Price Index (CPI) data will be released on Thursday. The US Department of Labor Statistics puts this vital report together every month. It provides excellent context for understanding where inflation currently stands, as this issue has become a growing focus of both policymakers and consumers. Given that the US Federal Reserve maintains a dual mandate that includes price stability, the forthcoming CPI data could have significant implications for monetary policy.
With a comparatively light economic calendar on Wednesday, market participants are laser-focused on this report, especially with an eye toward increased volatility over the weekend. As inflationary pressures persist, driven by ongoing supply-chain issues and bottlenecks, the CPI report will serve as a key indicator of economic trends. The latest numbers just showed consumer price inflation at 0.0% in November. That reflects a bit of a cooling trend, although prices are still holding at these multi-decade highs.
Understanding the CPI and Its Implications
It’s the Consumer Price Index, one of the most important measures used to track inflation, measured on a month-over-month (MoM) basis. This approach has the advantage of being able to compare prices of items in our reference inflation month to prices from one month earlier. Increased CPI figures would put upward pressure on interest rates as the Federal Reserve would be expected to respond in kind through normalization of its monetary policy.
As we’ve seen in recent trends, even though CPI has moderated over the past few months, inflation is still at an elevated level. The Fed’s focus on CPI is underscored by officials’ statements regarding its influence on their decision-making process. As Fed Board member Christopher Waller recently observed,
“Because inflation is still elevated, we can take our time — there’s no rush.”
Such sentiment betrays a shocking readiness to accept higher and more persistent inflation, with the danger of destabilizing inflation expectations.
Global Context: The Swiss National Bank’s Perspective
Though the primary focus will be on US economic data, the implications of CPI do not end at US shores. The Swiss National Bank (SNB) uses CPI data in order to judge inflationary trends in Switzerland. SNB inflation projections 2017 The SNB now forecasts year-over-year inflation of around 2%. That suggests that inflationary trends are more global than simply the United States.
The CPI numbers are continuing some modest calming. For its part, the SNB maintains that the overall inflation outlook is still too persistently too stable to warrant a turn in policy at this moment. Central bankers around the world should take note. They too have yet to fully address strong price pressures and their overall economic effects.
Market Reactions and Future Outlook
As markets prepare for Thursday’s CPI report, analysts anticipate that any notable shifts in inflation data will reverberate across financial markets. Investors are understandably nervous given that CPI drives both Fed policy interest rates and the overall economy. With price pressures still stubbornly strong, confidence in the market might depend on what the Federal Reserve does next.
Our report later this year will dig into these and other persistent issues affecting supply chains. These bottlenecks have been wreaking economic havoc across the globe. If these constraints persist in keeping consumer prices high, they may find themselves deep in yet another negotiation over what must be done to intervene.