The US April CPI will be released tonight. Will it meet the expectations of the Fed?

Tonight at 8:30, the US will release CPI data for April. The market expects that the April data may show a moderate slowdown in inflation, but the Fed will need more evidence.

April CPI will be the first of two CPI reports released before the Fed's next interest rate meeting on June 13-14.

Given that Fed officials have emphasized that they will decide whether to raise interest rates for the 11th consecutive month next month or pause based on the upcoming economic data, this data will be closely watched.

Can inflation continue to slow in April?

April's inflation data may show mixed inflation growth, with gasoline prices accelerating in April while price increases in other categories are more moderate.

Therefore, the result may be a significant overall increase in prices, but core CPI (excluding food and energy) may slow down. This divergence indicates that the Fed's 10 consecutive interest rate hikes have had a moderate impact on price increases, while also highlighting that it will take longer to lower the inflation rate to the Fed's 2% target.

Economists expect that April CPI will rise from 0.1% in March to 0.4% month-on-month, and the annual rate will remain at 5% in March.

But core CPI is considered a better indicator of potential price growth, and it is expected that core CPI will decrease by 0.3% month-on-month in April, down from 0.4% in March, and the annual rate will decrease to 5.5%, down from 5.6% in the same period last year.

Sub-item data is critical

What is worth paying attention to in the April report is which categories perform the strongest.

For example, the surge in oil prices last month will not be seen as a reliable indicator of future inflation trends, as price increases are expected to slow down when the May report is released.

Housing prices in April may have slightly declined. Economists expect further easing of rents and housing costs.

But economists say that core service prices, excluding housing, are expected to remain strong in April.

The price of used cars, which has been falling for the past few months, is expected to rise in April.

How will the Fed act?

The continued strength of housing and other service costs means that most analysts expect April data to be higher than expected. This may scare investors who still hope that the Fed will see sufficient relief from inflation in the coming months and start cutting interest rates before the end of the year.

But strong data in April, especially depending on the performance of inflation and employment data in May, may prompt the Fed to take the opposite action, at least one more interest rate hike.

Citigroup economists said: "The Fed's inflation forecast is likely to be significantly raised." "Higher-than-expected inflation is a key factor that will cause us to continue to raise nominal policy interest rates this year, and the basic forecast is still for further interest rate hikes in June and July." "

However, it should be noted that the Fed seems to be prepared to maintain stable interest rates at the June meeting.

Alex Pelle, an economist at Nomura Securities, said: "It is important to remember that although our forecast represents strong inflation, the Fed has already raised the threshold for further rate hikes."