US headline CPI inflation likely to accelerate to 2.4% - TDS

Analysts at TDS expect US headline CPI inflation to accelerate further to 2.4% y/y in March, with prices flat on the month on a seasonally adjusted basis.

Key Quotes

“The flat read is on account of weaker energy prices, with declines in gasoline and electricity prices in particular as presaged by retail data and the PPI report. We eye a modest boost from food prices, partly reflecting a rebound from the prior weakness while producer prices also point to a weather-related uptick.”

“Excluding food and energy, we expect core CPI to print another 0.2% m/m increase. This assumes a correction in core goods prices, led by apparel and vehicle prices, offset by a rebound in core services, driven by the shelter component. Given greater scope for downside in core goods prices, we expect a weak 0.2% print with risks skewed lower. Nevertheless, core inflation should move smartly higher to 2.1% y/y but largely on a base effect.”

“FX: We struggle to think that the CPI release will do much to alter the current USD malaise. At this point, the Fed narrative is well understood and expectations for a gradually accelerating CPI outlook is hardly shocking for FX markets especially with a "3 or 4 hikes" bias circulating through market chatter. Unless CPI disappoints in a material way, we view this report as more noise than signal, of which, will likely overshadowed by global matters (like the trade dynamic between US and China) and the Fed minutes later in the day. We will watch USDJPY as the signpost for broader USD moves given the technical significance of 108 and recent stall in price action between 107.00/50. On the downside, 106.70/80 should be the key support area that if broken, would accelerate broader USD weakness.”