US CPI: Gasoline prices to push headline CPI higher – TDS

Research Team at TDS, suggests that a higher gasoline prices are expected to push headline CPI up a further 0.3% m/m (up 0.262% m/m at 3 decimal places).

Key Quotes

“This will mark the fastest monthly pace of headline price gains since May last year, bringing to an end a prolonged period of subdued headline inflation performance. Besides the 2.1% m/m gain in energy prices, which should be flattered higher by the 6.0% m/m rebound in gasoline prices, food prices are expected to edge modestly higher. On a year ago basis, the annual pace of headline consumer price inflation should accelerate to 1.0% y/y from 0.9% y/y. However, with base effects becoming less favorable in the coming months, the outlook is for some modest easing in headline inflationary pressures into midyear, with the annual inflation rate falling back to 0.8% y/y by July.

Core inflation momentum should remain subdued, rising at a 0.1% m/m pace (up 0.142% m/m at 3 decimal places), following the equally disappointing performance the month before. Despite the monthly advance, core inflation is expected to decelerate to 2.1% from 2.2%. Core inflation should remain fairly subdued for the remainder of the year.

A broadly in line consensus expectation for CPI will do little to alter recent USD trading dynamics and we think markets will need to see sustained evidence of an upturn in inflation accompanied with more constructive rhetoric from Yellen to feel more comfortable in chasing additional USD upside. Barring a material upside surprise on core inflation we expect the USD should be broadly contained.

We find some tactical appeal in AUDUSD downside however given the upcoming RBA minutes which is likely to lean on the dovish side given the recent cut and benign outlook for inflation. We continue to like USDCAD topside, particularly in the coming days, as the simultaneous release of manufacturing sales tomorrow as well as retail sales later in the week should lean negatively as well.”