Date: 12 Feb 2018
This Wednesday’s US CPI data will be a major focus for the currency markets after the January spike in US average hourly earnings (which was released on Feb 2) helped to provoke turmoil in asset markets last week. The consensus among economists polled by Reuters is for an easing back in the headline CPI figure to a year-on-year rise of 1.9 per cent from December’s 2.1 per cent increase. As for core CPI that is forecast to ease back to a 1.7 per cent rise year-on-year from the prior 1.8 per cent. It might seem odd in the face of last week’s price action that a market that was suddenly energised by the prospect of a faster pace of US inflation can also be expecting benign CPI data for this Wednesday.
Japan’s MUFG made the point on Monday that “an overshoot in vehicle and medical goods prices in December points to giveback and a softer [CPI] print on Wednesday that would go some way to easing current investor fears. Wage inflation did not emerge in 2017 and even if you believe the data last week is a sign of things to come, usual lags mean this will not be evident in consumer prices until toward year-end or even into 2019.” Of course that also means that if Wednesday’s US CPI surprises on the upside, there’s a real risk markets will be ill-prepared for such an outcome. Traders might wish to consider that possibility.
Written by Neal Kimberley, External Currency Analyst.