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Inflation remains hot in the US CPI report again!

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Inflation remains hot in the US CPI report again!

The US Bureau of Labor Statistics (BLS) has released its monthly Consumer Price Index (CPI) report. The CPI is a measure that examines the weighted average of a wide array of prices of a basket of consumer goods and services that US households purchase.

The report noted that the consumer price index climbed by 8.3 percent on an annual basis in April, slightly lower than 8.5 percent in the previous month of March but higher than the 8.1 percent consensus of most Economists.

Possible Implications and Outlook

The report implies that the inflation rate may be near its peak but is still unlikely to go down in the near term; the interest rate will likely stay at this level until the US Federal Reserve takes decisive monetary action. Furthermore, the CPI result could further push the US Federal Reserve to continue with its current monetary policy trajectory of increasing interest rates in the succeeding Fed meetings. In addition, the following CPI report in May will come five days before the Federal Reserve’s meeting in June. As a result, analysts project that a 75 basis-point hike has a strong possibility of being back on the table for the US Central Bank.

Moreover, according to the US CME Federal Reserve Watch, “The market is fully priced for at least a half percentage point increase to the policy rate at each of the subsequent two Fed decisions, on June 15 and July 27.”

Adding to this, Mr. Rodrigo Catril, a senior currency strategist at National Australia Bank, mentioned, “The stronger-than-expected US inflation print heightened concerns over the need for the Fed to accelerate its policy tightening path.”

Giving the complete picture, Mr. Thomas Halves, Chairman of Great Hill Capital in New York, said, “It was a mixed bag. On the one hand, it’s lower than last month, so inflation may have peaked. But, on the other, it’s worse than expected. So, there’s something for everyone to hate and something for people to love.”

He continued, “the good news is that the numbers came down off of last month. The bad news is that they’re a little higher than expected. So that’s a positive development, and markets are mixed as a result. So inconclusive, but trending in the right direction.”

How the US Financial Markets Reacted

Following Wednesday’s CPI report, the S&P 500 closed at 3,935.18, down by 1.65%. Dow Jones Industrial Averages (DJIA) closed at 31,834.11, down by 1.02%, and the NASDAQ composite suffered the heaviest loss, declining by 3.18% at its close of 11,364.24. On the other hand, the US dollar held near to its two-decade high. In fact, the US Dollar Index (DXY), which measures the strength of the currency against six key currencies, glide around its highest trading price level (104-105), a level it broke for the first time since late 2002.

It shows a sharp contrast in movement between US equities and the US currency, which is expected to maintain this inverse movement moving forward as a rise in interest rate, or an anticipation of it discourages investments while, on the other hand, strengthens one’s currency.

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