After a quiet week for U.S. economic indicators, this week will ramp up with Wednesday’s release of the key April consumer price index.
For economists, attention is centered on the Federal Reserve and whether there are potential paths to interest-rate cuts before next winter.
The trend toward lower inflation was interrupted in the first quarter. That has raised fears of higher inflation and less easing from the Fed, said Sam Bullard, senior economist at Wells Fargo corporate and investment banking.
In light of the ugly data, Fed Chair Jerome Powell has laid out two potential paths to cuts. One is renewed confidence in low inflation; the other is unexpected weakening in labor markets
Economists will be watching the data with those two possible paths in mind.
At 10:00 a.m. Eastern on Tuesday, Federal Reserve Chair Powell will speak.
Powell will be able to provide an update on his opinions about interest rates and the US economy. Along with him on the panel will be Klaas Knot, the president of the Dutch central bank, the chair of the Financial Stability Board, and a member of the ECB’s governing council.
Before the CPI numbers are made public, Powell will talk. He’ll probably reiterate that it will take more time to become enough confident that inflation is down to lower interest rates.
April CPI
At 8:30 a.m. on Wednesday. Eastern
As per the Wall Street Journal survey of economists, Wall Street analysts anticipate a 0.4% increase in headline CPI inflation in April, marking the third consecutive month of such an increase. In April, the index is seen to have moderated to an annual rate of 3.4%, from 3.5% in March.
Core inflation is predicted to rise by 0.3%, the lowest pace since December, although only marginally. It is anticipated that the core CPI would reach a three-year low in April, with an annual rate of 3.6%.
According to Santander’s top U.S. economist Stephen Stanley, “April could be a baby step in the right direction.”
According to Derek Holt, head of capital markets economics at Scotiabank, a lower reading than consensus may rekindle market calls for reductions, but it wouldn’t be sufficient to influence the Fed any time soon.
When FOMC officials release a new one in a few weeks, “a warm/hot reading would probably offer further motivation for them to take an axe to the cuts shown in the March dot plot,” he continued.
In April, the index is anticipated to be under pressure due to petrol costs. Medical expenses may begin to decline and signal the beginning of a new, long-term trend of decline.
Economists still predict that inflation will trend lower this year, despite the unexpectedly high inflation figures in the first quarter.
According to the Philadelphia Fed’s most recent quarterly Survey of Professional Forecasters, experts predict headline inflation will run at a 2.5% pace in the fourth quarter and core inflation would run at an annual rate of 2.7%.
April retail sales
Wednesday 8:30 a.m. Eastern
Economists surveyed by the Wall Street Journal expect retail sales to moderate in April after their surprisingly strong gain in the prior month.
Economists are penciling in a 0.5% gain after a 0.7% rise in March. Excluding autos, sales are expected to cool sharply to a 0.2% gain from the 1.1% rise in March.
Lou Crandall, chief economist of Wrightson ICAP, said that you have to average the two months of core readings together.
“The unexpectedly large increase in the initial estimates for March seemed out of step with some other consumer indicators and we would not be surprised if they were revised down somewhat in this report. If so, growth in April would probably not be as subdued as expected,” he said.
Weekly jobless claims
Thursday, 8:30 a.m. Eastern
Economists surveyed by the Wall Street Journal expect jobless claims to fall 12,000 in the latest week ending May 11, retracing more than half of the surprising 22,000 gain to 231,000 in the prior week.
Economists say the gain was skewed by the rise in claims in New York because of a pop in claims from school support staff due to a late spring-break vacation week.
With the Fed watching the strength of the labor market, all eyes will be on the data.
