Hey Investors! Buckle Your Seat Belt for Feb. 14. It Could Be a Doozy.

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  • Tuesday’s CPI report is the make-or-break market catalyst this week.
  • January inflation is expected to have grown 0.4% on a monthly basis, reflecting a 6.2% annual jump.
  • The inflation index will offer some insight into the Federal Reserve’s rate hike schedule, which is expectedly hawkish.
CPI - Hey Investors! Buckle Your Seat Belt for Feb. 14. It Could Be a Doozy.

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Despite a relatively strong day for stocks, the bulls are timid ahead of tomorrow’s crucial Consumer Price Index (CPI) report. The popular inflation gauge is expected to show a mild, 0.4% month-over-month price increase, equivalent to 6.2% annual growth, per Dow Jones. Unfortunately, rumors are flying that the CPI may come out worse than predicted.

All eyes will be on the Labor Department Tuesday. While it isn’t the Federal Reserve’s preferred inflation gauge, the CPI remains a major market mover. Should prices come out hotter than expected, stocks may well nosedive. In that regard, there is evidence that the inflation gauge will come out worse than economists predict.

According to Mark Zandi, Chief Economist at Moody’s Analytics, inflation wins the past few months may well give way to a loss this time around. “We’ve gotten surprises on the soft side for the last three months. It wouldn’t be at all surprising if we get surprise on the hot side in January,” Zandi said.

Even according to the Cleveland Fed’s “Nowcast” tracker, current projections may be underestimating January inflation. The tracker predicts the CPI will read monthly inflation of 0.65%, reflecting 6.5% annual price growth. The Cleveland Fed has long stood by its tracker, claiming it outperforms other CPI projections. Should it hold true this month, it could be yet another sign that the Fed will push forward with its hawkish agenda.

Indeed, the Fed has been at the heart of the inflation battle for the better part of the past year and a half or so. Investors everywhere are holding out hope for softening inflation to avoid further rate hikes, which, currently, seem unavoidable.

Tuesday’s CPI Inflation Report Looms on Interest Rates

The market-turning fear for most investors is more rate hikes. Should the inflation read too high Tuesday, it will be yet another piece of evidence that the Fed may raise its terminal federal funds rate goal, or begin hiking rates even more aggressively, both of which are bad for business.

Prices have been declining since the CPI reached its 9% peak in June 2022. Inflation slipped to 6.4% in December, prompting even Fed Chair Jerome Powell to admit the disinflation process has begun.

Despite this, the central bank’s path forward remains as murky as ever. After eight rate hikes in a little more than a year, and with some evidence that prices are starting to ease, some say it’s time to wait and see. The Fed, however, likely has different ideas.

Powell has long laid expectations for further rate hikes. Last week’s shockingly strong January jobs report likely only further cemented the continuation of the Fed’s tightening process.

Reasonably so, while 6.4% inflation is a noticeable improvement from June, it’s a far cry from the central bank’s long-stated 2% goal. In fact, much of the disinflation has been due to cheaper energy costs, largely by way of government-assisted oil supply relief. Meanwhile, food prices are still up more than 10% from last year.

Looking to Tuesday, the market response may offer little to inform the Fed’s actual trajectory, especially given its stated preference for the Personal Consumption Expenditures Price Index (PCE).

Even according to Zandi, the individual report may not prove as significant as many analysts will make it:

“We shouldn’t get fixated too much on any month-to-month movements… Generally, looking through month-to-month volatility we should see continued decline in year-over-year growth.”

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


Article printed from InvestorPlace Media, https://investorplace.com/2023/02/hey-investors-buckle-your-seat-belt-for-feb-14-it-could-be-a-doozy-cpi/.

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