Investors brace for the highest inflation reading in nearly 40 years
Wall Street expects the the index to reflect a 0.7% gain for the month, which would translate into a 6.7% increase from a year ago, according to Dow Jones estimates. Excluding food and energy, so-called core CPI is projected to rise 0.5% on a monthly basis and 4.9% on an annual basis.
If those estimates are correct, it would be the highest year-over-year reading for headline CPI since June 1982, when the index surpassed 7% after topping out at over 14% in both March and April 1980, a record that still stands. On core, the level would be the highest since June 1991.
The jump in inflation, though, is hardly news to the market. Investors have watched a variety of data points in recent months show their highest levels in decades. In fact, some economists think the headline increase could exceed 7%.
What the market will care about is just how hot the level is, and what reaction it might trigger from the Federal Reserve.
The Fed already is reacting to inflation and is soon to do more.
At its meeting next week, the central bank is expected to speed up the pace at which it is withdrawing economic support. In practice, that means likely doubling the taper in bond purchases to $30 billion a month.
That would bring a program that had seen $120 billion a month in purchases to an end by around March 2022. After that, the Fed could start raising interest rates if inflation is still a problem.
Current market pricing is for the Fed to enact its first 25-basis point rate hike in May or June. There’s about a 61% chance of three hikes coming by December, according to the CME’s Fed Watch tracker.
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