[Preview] US CPI for March to be announced tonight Be careful of commodities-led inflation

The U.S. Bureau of Labor StatisticsWednesday, April 10 at 21:30 (Japan time)uponUS Consumer Price Index (CPI) for MarchIt is scheduled to be announced.

In the market, March CPI is expected to be 3.4% compared to the same month last year (previous value 3.2% increase), and core CPI is expected to increase 3.7% (previous value 3.8% increase)It will be done. Although the figure compared to the same month last year is significantly lower than the peak of 6.6% recorded in '22, there are variations in recent developments aimed at controlling inflation.

The March Consumer Price Index (CPI) showed a slowdown in the underlying inflation rate at a slow pace, which seems to confirm the US financial authorities' cautious approach to interest rate cuts. The employment statistics announced on the 5th had just become unexpectedly strong.

The composite index is expected to rise 0.3% from the previous month, and the core index, which excludes food and energy, which fluctuates greatly, is also expected to grow similarly. The previous month's results for both the composite index and the core index were up 0.4%.

The strength of the labor market exceeds market expectations
The employment statistics for March exceeded expectations for the fifth month in a row. Financial officials led by Federal Reserve Chairman Powell (FRB) have taken the possibility that the slowdown in labor demand over the past year or so will be a harbinger of interest rate cuts, but since the number of people employed in the non-farm sector has increased drastically by 303,000 people compared to the previous month, there is a possibility that questions will arise about the extent of the slowdown in demand and its impact on inflation.

A number of US financial officials who spoke last week were consistent in their message that it was appropriate to wait until there were more clear signs that inflation was slowing toward government targets before taking the first step towards cutting interest rates.

There is a possibility that the Fed's interest rate cut window has almost closed
The graph below shows monthly trends in core CPI over the past 12 months. The annual inflation rate for the core CPI is calculated by replacing the “previous” monthly data for each month with “now” monthly data. The graph shows that the monthly core inflation rate “skyrocketed” in March, April, and May of 2023, followed by significant disinflation in June, July, and August. These show base effects (base effects).

The graph also shows the current “bumps” in January and February 2024 after the monthly inflation rate gradually increased. What this means is that if the monthly core CPI for March exceeds 0.325%, the annual inflation rate will remain unchanged at 3.8. If it is 0.35% (0.4% rounded) or more, the annual core CPI will rise. This is due to the base effect. If the monthly core CPI remains at 0.3%, the annual core CPI will rise rapidly from June. This is also due to the base effect.

The Fed is expected to start cutting interest rates in June, when core CPI starts to rise, so this is extremely important for investors. According to the above calculations, it is thought that it will be extremely difficult for the Fed to cut interest rates in June.

● Housing expenses (shelter)
Housing cost (shelter) inflation is caused by an increase in owner's equivalent rent (Owner's Equivalent Rent) and is a major driver of core inflation and overall inflation, complicating overall inflation reduction efforts. Rental prices in the market are showing signs of falling, but this has yet to affect official housing inflation data. The Federal Reserve wants housing costs to decrease, but since housing prices are still high and the slowdown has stagnated, it is unlikely that housing cost inflation will decrease in March data.

●Energy (commodity driven inflation)
Energy and commodities play a central role in the current economic situation, and oil prices have risen since the Federal Reserve's dovish turn in December. If the Fed cuts interest rates in a hurry, commodity prices may rise further and the risk of sustained inflation caused by commodities will increase. The recent sharp rise in gold prices suggests that concerns about controlling inflation are growing. Deglobalization and the conflict between Ukraine and Gaza are putting pressure on commodity markets. Energy inflation increased 2.3% from the previous month in February, and it is expected that this trend is likely to continue.

●Adhesive CPI (sticky price CPI less shelter) excluding housing expenses
If you don't consider inflation in energy and housing costs (shelter) and evaluate sticky price CPI (sticky price CPI), which is influenced by wage growth and the labor market as a whole, you won't get the same good news.

Adhesive CPI (sticky price CPI less shelter), which excludes housing expenses, bottomed out in November at 3% compared to the same month last year.