REPEAT:MNI 5 THINGS:US CPI Expected To Rebound From Soft March

Repeats Story Initially Transmitted at 16:55 GMT May 9/12:55 EST May 9

By Holly Stokes

     WASHINGTON (MNI) - The Consumer Price Index will be released on Thursday,

and the outlook among analysts is for overall CPI to rise 0.3% as the core

component increases 0.2%.

     Ahead of the release, we outline five themes for particular attention. 

--ANALYST HISTORY SUGGESTS SMALL DOWNSIDE RISK TO CPI

     Over the past 20 years, analysts have shown a tendency to overestimate

April CPI - with eight overestimates compared to just four underestimates.

However, only one of these overestimates has been larger than 0.1pp, suggesting

that analysts are unlikely to miss by a large degree. Taken together, there is a

slight downside risk to the median estimate of 0.3%. There is a less clear

directional risk to the core CPI estimate. In the past 20 Aprils, analysts have

overestimated six times and underestimated eight times - but this slight

tendency to underestimate seems to have dissipated in more recent history, with

four overestimates and three underestimates in the past 10 Aprils. Similar to

the headline misses, analysts have historically not missed April core CPI by a

large amount - suggesting the 0.2% estimate could be right on target.

--UNCHARACTERISTICALLY SOFTER MARKET EXPECTATION

     Markets expect a slightly weaker headline CPI than analysts, with the

whisper number hovering at a 0.2% rise. The softer whisper number could be a

reaction to markets' 0.3pp overestimate in March - as CPI came in -0.1% to the

surprise of both markets and analysts. The whisper number has not been softer

than analysts' forecasts since November, which also followed a market

overestimate of 0.3pp the month before. In November, the analyst forecast came

to fruition, as the whisper number turned out to be too soft. Further, analysts

have only overestimated by a greater degree than markets twice in the past year.

While last month's overestimate may be coloring the forecast, the tendency of

both analysts and markets to overestimate CPI in recent months shows a potential

downside risk.

--NOT TO WORRY ABOUT STRONG Y/Y CORE CPI

     If analysts are correct, and core CPI month/month rises 0.2%, this would

set year/year for a 2.2% or 2.3% gain, depending on the strength of the 0.2%

unrounded. This would follow last month's trend of exceeding the Fed target, as

soft cellular phone plans no longer weigh down inflation. While a 2.3% gain

would be match the fastest pace of growth since January 2017, and there has not

been a faster pace since September 2008, a strong market reaction is unlikely.

Given the FOMC's statement that the inflation target is symmetric, policymakers

are not expected to read too far into the faster pace of core CPI. 

--ENERGY TO RECOVER MODESTLY

     After falling 2.8% month/month in March, energy may be pointed for a modest

rebound in April. Though unadjusted gas prices rose in March, a history of

strong prints in the month led seasonal factors to convert that gain into a

decline. Now, industry data suggests gas prices rose more than 6% in April.

However, taken with seasonal adjustments, analysts such as BMO looks for a more

modest 0.3% gain in the component. Further, the already released PPI report

shows that energy rose a muted 0.1% in April, after falling 2.1% the month

before, with gasoline prices down 0.4%. While not a direct correlation, PPI

energy and CPI energy typically fall broadly in line with each other, suggesting

that CPI energy should see only a modest rebound. 

--APPAREL PRICES TO DAMPEN CPI

     Apparel prices may continue to weigh on CPI. Apparel prices have been

volatile in recent months. January surged 1.7%, the largest rise since February

1990, and was followed by another 1.5% jump in February. However, March apparel

prices showed payback, as the index fell 0.6%. Analysts expect apparel prices to

weaken further in April. Amidst a strong USD, goods easily imported, such as

apparel, are likely to face a slowdown in inflation as cheaper imports keep

domestic prices low.

--MNI Washington Bureau; +1 202-371-2121; email: holly.stokes@marketnews.com