CPI Preview: Shelter Costs Hold the Key to Rate-Cut Clues
Today's spotlight is on the crucial US CPI report, with estimates suggesting potential declines in both the monthly and annual core CPI.
Market expectations project a decrease in the annual Core CPI from 3.9% to 3.7%, while the overall CPI data is anticipated to remain unchanged at 3.1%.
The shelter component's downward trend holds key implications for easing inflation going ahead and will provide hints about potential rate cuts.
Today marks the release of the week's most crucial data, the US CPI report.
According to Investing.com's economic calendar, estimates indicate that the core CPI component might experience both monthly and annual declines.
At the same time, the overall CPI data is expected to remain unchanged.
Market expectations for the data:
If the data falls, the following asset classes may see potential revaluations based on recent analysis:
It won't be surprising if treasury yields drop in case of lower-than-expected CPI (and vice versa).
The housing component, specifically Shelter, remains uncertain. It's a lagging element and as illustrated below, it has been on a downward trend for some time:
The Shelter component holds a significant 33% weight in the overall Consumer Price Index (CPI). Therefore, the downward trend must persist if we want to observe a consistent decrease in inflation.
If the data turns out to be lower than expected, there could be a positive impact. The Federal Reserve might reconsider its initial plan for an interest rate cut. This, in turn, could lead to market rallies.
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