On Wednesday afternoon (GMT+3), the US Consumer Price Index (CPI) figures were released, showing that consumer prices grew by 8.3% year-on-year, more than the forecast of 8.1% but less than March’s figure of 8.5%. Meanwhile, core increased 0.6% month-on-month, higher than analyst estimates of 0.4% and almost double the previous month’s figure of 0.3%.
The CPI is a key measure of inflation, and the latest figures aren’t so straightforward. Contrary to what some analysts forecasted previously, inflation has not peaked, although the rate of annual inflation has slowed. However, the core CPI figures CPI – which exclude volatile goods like oil and food – paint a slightly different picture. Consumer prices have spiked, but some of the blow has been softened by oil prices cooling down since their peak volatility in March, due to the Russia-Ukraine conflict.
While annual inflation has been moderated, the markets’ reaction to the high-than-expected CPI figures has been skittish. US equities continue their downward slide, with the Dow losing 1.02%, the S&P500 dropping 1.65%, and the tech-heavy Nasdaq dropping a hefty 3.18%. Crypto, which looks to be increasingly correlated to the stock market, have also been sinking, with Bitcoin dropping below $29,000.
Predictably, investors are rotating in the safe-haven dollar, with the US dollar index climbing for the sixth straight day and jumping above 104 after the release of the CPI data. Treasury yields jumped too and is currently around 2.906%.
Meanwhile, gold prices dipped briefly at the news on Wednesday, but quickly rebounded above the $1850 mark and has been trading steadily since.
“Overall, gold hasn’t been a bad investment. It’s been holding a fairly tight range, I’d much rather own gold than Nasdaq, or Bitcoin,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.
Due to the mixed inflation data, investors are now closely watching Fed signals on upcoming rate hikes. A 50-point hike, like the last time, is expected. The notably hawkish St. Louis Fed President James Bullard has said that, while “Inflation is broader and more persistent than many have thought”, a 75-point hike is not his “base case”. Previously, Fed chair Jerome Powell has also pushed back on a 75-point hike.
Investors are now advised to pay close attention to the upcoming month-on-month figures for the Producer Price Index (PPI), which will be released on Thursday, 12 May, at 15:30 (GMT+3). Like the CPI, the PPI is a leading measure of inflation, but measures costs from the seller’s point of view and does not include imports.
As a friendly reminder, do keep an eye on market changes, control your positions, and manage your risk well.