US CPI Data: Is Inflation On The Rise Again?

US inflation data is set for release today at 4:30 PM GMT+4. The markets usually watch how the real reading will turn out compared to the expected reading and the previous reading. Expectations indicate that inflation on an annual basis will rise again to 3.3%, compared to the previous reading of 3.0%, which would mark the first rise in inflation in 12 readings, where inflation recorded a continuous decline from 9.1% to 3%. If these expectations are true, this could reflect in the Fed's concerns that inflation is still entrenched in the economy.


The markets will be closely watching this data due to its expected impact on the course of upcoming interest rate decisions. The Fed has raised rates in 11 out of its 12 previous meetings, stating that it would be flexible in dealing with interest rates according to the nature of the economic data, and stressing the importance of inflation returning to target levels of 2%.



Expectations that inflation will rise again


Source: US Department of Labor Statistics



Therefore, the markets will be looking at whether the inflation reading will be optimistic, justifying a pause in interest rates in the Fed’s next September meeting, or if the data calls for tighter monetary policy. Overall, today’s inflation report is likely to bring fluctuations to the financial markets, whereby the market's initial reaction, regardless of the nature of the real reading, may be sharp and volatile at first, before the market returns to stability.


Therefore, it must be noted that traders have different ideas and convictions in how they interpret the information issued, and therefore prices cannot move 100% according to that information. Here are the expected scenarios, in accordance with analysts’ expectations.


1.The first scenario: A reading higher than the previous reading and higher than expected.


This means that there are fears of rising inflation once again, and this could push the Fed to continue at a stricter pace with regard to interest rates. According to analysts, this may be positive for the US dollar and negative for stock indices and gold.



2. The second scenario: A reading at or below the previous reading.


 This scenario could be a sufficient and convincing reason for the Fed to pause its interest rates hikes at its next meeting, and could therefore be negative for the US dollar and positive for stock and gold indices, according to analysts.



3. The third scenario: A reading between the expected (3.3%) and the previous reading (3.0%)


This outcome would be the most confusing one, even if it is closer to the first scenario, given that inflation has stopped declining.




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