- Get ready for some early action this morning as the consumer price index for April is published at 8:30 a.m. ET. The figure is expected to be the hottest in nearly a decade, rising 3.6% Y/Y, though economists have cautioned that the jump could appear larger due to the base effects of 2020 when prices were weak amid pandemic shutdowns. The Fed has also maintained that the pickup in inflation will be transitory, but traders in financial markets don't appear to be so sure.
How is the CPI calculated? The measure uses a "basket of goods" approach that aims to compare the costs of various consumer goods and services. These can include transportation, food, rent, haircuts and medical care (80,000 items are included in the report). Each month, data collectors from the Bureau of Labor Statistics call, visit, or check the websites of thousands of retail stores, professional offices and other establishments to assess nationwide price information. Specialists then examine the data for accuracy and make statistical adjustments based on any given item's value.
The anticipated 3.6% jump in the headline number for April would be the largest since Sept. 2011, and follows a 2.6% Y/Y print last month, which already was above the Fed's inflation target. On a core basis (excluding food and energy), the CPI is expected to have increased by 0.3%, or 2.3% Y/Y. "I just think that in general there's this thought that inflation may rear its ugly head," said JJ Kinahan, chief market strategist at TD Ameritrade. "We see a little bit higher rates, not significantly, but a bit higher rates. And I think this struggle between value and growth also continues at the same time."
Outlook: Investors have already seen widespread price increases on commodities like copper and lumber, while the bond market's forecast for inflation over the next decade has risen substantially. That's helped trigger swings in the stock market, sending the Cboe Volatility Index on Tuesday to its highest level since March. Meanwhile, executive usage of the word "inflation" has increased 800% in Q1 earnings calls, according to Bank of America, while last week's big jobs report miss is being viewed as a sign that companies will have to raise wages to lure more unemployed people into the workforce. | TOGETHER WITH  |
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| | Top News  Shutterstock Get ready for some early action this morning as the consumer price index for April is published at 8:30 a.m. ET. The figure is expected to be the hottest in nearly a decade, rising 3.6% Y/Y, though economists have cautioned that the jump could appear larger due to the base effects of 2020 when prices were weak amid pandemic shutdowns. The Fed has also maintained that the pickup in inflation will be transitory, but traders in financial markets don't appear to be so sure.
How is the CPI calculated? The measure uses a "basket of goods" approach that aims to compare the costs of various consumer goods and services. These can include transportation, food, rent, haircuts and medical care (80,000 items are included in the report). Each month, data collectors from the Bureau of Labor Statistics call, visit, or check the websites of thousands of retail stores, professional offices and other establishments to assess nationwide price information. Specialists then examine the data for accuracy and make statistical adjustments based on any given item's value.
The anticipated 3.6% jump in the headline number for April would be the largest since Sept. 2011, and follows a 2.6% Y/Y print last month, which already was above the Fed's inflation target. On a core basis (excluding food and energy), the CPI is expected to have increased by 0.3%, or 2.3% Y/Y. "I just think that in general there's this thought that inflation may rear its ugly head," said JJ Kinahan, chief market strategist at TD Ameritrade. "We see a little bit higher rates, not significantly, but a bit higher rates. And I think this struggle between value and growth also continues at the same time."
Outlook: Investors have already seen widespread price increases on commodities like copper and lumber, while the bond market's forecast for inflation over the next decade has risen substantially. That's helped trigger swings in the stock market, sending the Cboe Volatility Index on Tuesday to its highest level since March. Meanwhile, executive usage of the word "inflation" has increased 800% in Q1 earnings calls, according to Bank of America, while last week's big jobs report miss is being viewed as a sign that companies will have to raise wages to lure more unemployed people into the workforce.    | |
| Stocks Volatility is still reigning high in the markets, with Wall Street's best fear gauge, known as the VIX, hitting levels yesterday that haven't been seen in two months. The index traded as high as 23.73 intraday, as concerns about inflation spread to other areas of the market, with the Dow losing 473 points, to end the day down 1.4%. The Nasdaq meanwhile rebounded from earlier losses of 2%, but the buy-on-dip crowd couldn't push the index into the green before the close.
Things aren't looking better this morning. Stock index futures are all off by about 0.4% ahead of an inflation report that could shake markets once again. Fears about a sustained jump in inflation have particularly weighed on growth stocks, including those in the tech sector that were popular during the pandemic. Cyclical shares have meanwhile climbed on expectations of a full economic reopening, but those gains could also be challenged in the new price environment.
Quote: "Everyone who is involved in markets knows that the inflation data is running hot," said Jonathan Golub, Credit Suisse's chief U.S. equity strategist. "The debate right now: Is this temporary or is this something stickier? And we won't know for a long time, but that's really where the conversation is going."
Go deeper: If the latest price rise is mostly commodity-driven, the future will largely depend on how long those inputs keep rising. For example, the demand that ensued following the 2009 economic rebound pushed up global inflation for two years until commodity markets topped out. This time around, raw materials aren't the only factor fueling inflation, given the shortages of everything from electronics to cars, as well as logistical logjams. That's on top of pent-up demand from the pandemic, as consumers take out their wallets and the government entertains the idea of trillions more in federal spending. | |
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| Energy Operators of the Colonial Pipeline (NYSE:SHLX) will know by late Wednesday whether it's safe to restart flows of fuel following a crippling cyberattack last week that shuttered the 5,500-mile conduit. Even when the pipeline is restored to full service, it'll take about two weeks for gasoline stored in Houston to reach East Coast filling stations, while heavier diesel and jet fuel will take even longer (about 19 days).
The national average of retail gasoline prices has already risen above the politically sensitive level of $3 a gallon for the first time in six years, adding to broader inflationary pressures. More than 1,000 gas stations in the Southeast have reportedly run out of fuel, while premium for wholesale gasoline in the New York area reached its widest in three months. Crude processors are also being forced to reduce run rates, while refiners are booking ships to store growing fuel stockpiles.
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