Will need to see a convincing inflation slowdown before slowing Fed rate hikes
inflation risks may be biased to the upside and warrant doing more upfront
after point increases in June and July, the Fed will have to see what more is needed on the data in the meantime
Expect PCE inflation
Inflation
Inflation is defined as a quantitative measure of the rate at which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general price level where a given currency is effectively buying less than it has in previous periods. In terms of valuation of strength or currencies, and by extension foreign currencies, inflation or its measures are extremely influential. Inflation stems from the global creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply relative to the wealth produced (measured with GDP). This thus generates demand pressure on a supply that is not increasing at the same rate. The consumer price index then increases, generating inflation. How Does Inflation Affect Forex? The level of inflation has a direct impact on the exchange rate between two currencies on several levels. This includes purchasing power parity, which attempts to compare the different purchasing power of each country according to the general level of prices. By doing so, it helps to determine the country with the most expensive cost of living. The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates in the forex market. Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on the exchange. Conversely, too low inflation (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the foreign exchange market.
Inflation is defined as a quantitative measure of the rate at which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general price level where a given currency is effectively buying less than it has in previous periods. In terms of valuation of strength or currencies, and by extension foreign currencies, inflation or its measures are extremely influential. Inflation stems from the global creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply relative to the wealth produced (measured with GDP). This thus generates demand pressure on a supply that is not increasing at the same rate. The consumer price index then increases, generating inflation. How Does Inflation Affect Forex? The level of inflation has a direct impact on the exchange rate between two currencies on several levels. This includes purchasing power parity, which attempts to compare the different purchasing power of each country according to the general level of prices. By doing so, it helps to determine the country with the most expensive cost of living. The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates in the forex market. Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on the exchange. Conversely, too low inflation (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the foreign exchange market.
Read this term could return to around 2.5% in 2023
Tomorrow, US CPI data will be released at 8:30 a.m. ET. The month’s stock is expected to rise 0.2% and food and non-food core energy are expected to rise 0.4%. Year-over-year, the stock is expected to fall 8.5% to 8.1%, while food and non-food energy are expected to fall 6.5% to 6.0%.
A year ago, the MoM stood at +0.8%. With expectations at 0.2% (a decline of -0.6% year-on-year from 0.8% last year), the decline from 8.5% to 8.1% has the potential to to be weaker.
If you were to add the MoM over the past 12 months (see the numbers on the table below), the total MoM numbers come to 8.3%. If you were to replace 0.2% with 0.8% this month (the expected rise this month), the sum of the monthly figures would come in at 7.7% well below the estimate of 8, 1%.
There seems to be room for the possibility of a yearly number below 8% for the number of stocks if the number comes in at the expected level of 0.2%.
IPC MoM figures over the last 12 months
On the core measure (excluding food and energy (see monthly figures below), the 0.4% expectation would replace a 0.9% gain last year (-0.5%) If last month the year-over-year calculation was +6.5%, that would imply a rate of 6.0% (0.9% replaced by 0.4% which is the estimate).
Adding up the MoM earnings for the current 12 months (see main monthly figures below), the numbers add up to 6.2%. If 0.4% replaces 0.9% from last month, the sum of the months would be 5.7%. It is possible that the number will be lower if the number arrives as expected.
Sum of core CPI for months
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