[Preview] US CPI schedule for April to be announced tonight Morgan S is expected to significantly fall short of market expectations

The U.S. Bureau of Labor StatisticsWednesday, May 15 at 21:30 (Japan time)uponUS Consumer Price Index (CPI) for AprilIt is scheduled to be announced.

In the market, April CPI is expected to be 3.4% (previous value 3.5% increase) compared to the same month last year, and core CPI is expected to increase 3.6% (previous value 3.8% increase)It will be done. This time, housing inflation, which accounts for about one-third of the CPI index and about one-sixth of the PCE price index, is attracting attention in the market as having a major impact on overall inflation.

The US employment statistics for April announced on the 3rd showed a slowdown in the labor market. Under such circumstances, the April Consumer Price Index (CPI) to be announced on the 15th gives new clues about the state of the US economy.

Experts' point of view
Morgan Stanley chief economist Seth Carpenter pointed out that housing inflation accounts for 40% of the core CPI and 18% of the core PCE, and no matter what the housing inflation is, the overall CPI data is likely to follow suit.

He argues that current rent data is very weak, that despite last year's surge in immigration, apartment vacancies are approaching historic high levels, housing inflation is showing a downward trend, and the US consumer price index on Wednesday will be “significantly lower than expected.”

Also, due to seasonal adjustments, he predicted that the inflation rate for the first quarter was higher than the actual situation and would be revised at a later date.

Analysts at Standard Chartered shared this view. Analysts in the bank see a possibility that the housing inflation rate will fall soon and lower the core inflation rate.

Rents, the Federal Reserve's last step towards de-inflation
Nick Timiraos of the Wall Street Journal points out that high rents are hampering the Fed's fight against inflation. Since housing inflation accounts for a high weight of 1/3 of the CPI index and 1/6 of the PCE price index, it is explained in the article that it has a big impact on overall inflation. The latter is more important than the former because housing prices are influenced by investment factors, and rents more reflect the actual state of the market.

He says that the rise in rents during the pandemic has greatly boosted the inflation rate. The rent inflation rate is still at a high level, but it is on a downward trend. Steven Englander, chief FX strategist at Standard Chartered, expressed similar views in a recently published report.

According to him, there is reason to be optimistic that if housing costs, particularly homeownership equivalent rent (OER), which is a correlation index of CPI housing inflation, housing inflation will soon decline, and there is a possibility that the core inflation rate will be lowered.

Meanwhile, many economists believe that the downward trend in new rental rents over the past few years will certainly cool down housing inflation, but this process will take longer than expected.

Timiraos pointed out that demand for rent contract renewals is increasing because the number of people whose motivation to buy a home is declining due to high interest rates. Therefore, he stated that there is a possibility that the time until the decline in new rental rents is reflected in the headline inflation rate will be longer.

Crude oil prices peaked in April
The average crude oil spot price in April was $88.01, up from $83.55 in the previous month and $82.46 a year earlier. This is a 5.35% change from last month and 6.73% from a year ago.

However, since uncertainty on the demand side weighs on the market price, crude oil prices have continued to decline since early April. US gasoline and distilled oil inventories increased ahead of the summer driving season, indicating weak demand.

Food prices rose slightly in April
The United Nations Food and Agriculture Organization (FAO) food price index for April was 119.1 points, up 0.3 points (0.3%) from the March revision. This is because the price index for meat increased, and the price index for vegetable oil and grain increased slightly, exceeding the decline in the price index for sugar and dairy products. The April price index recorded a second month of increase after a downward trend that continued for 7 months, and fell 9.6 points (7.4%) from the corresponding value 1 year ago.

Observation of interest rate cuts
According to the CME Group's FedWatch tool, FF interest rate futures traders will temporarily wait until SeptemberThe probability that interest rate cuts will be implemented is 81.53%, by December100% probability that interest rate cuts will be implementedI was looking at it.