Although today's CPI inflation reading does not change the likelihood of a change to the level of rates at Fed meeting today, it likely alters the chances of interest rate moves in the next few months. Lower-than-expected inflation increases the market pricing for a full rate cut in November and gives a 70% chance of a cut in September. What to watch for in today's CPI reading?
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Create account Try a demo Download mobile app Download mobile appMonthly inflation remained unchanged, but it's worth noting that the most significant increase is still seen in rent-related inflation. Among the key components of inflation, fuel stands out, as it contributed the most to the reduction in the inflation reading. Source: Macrobond, XTB
When it comes to year-on-year data, rent inflation continues to contribute the most, though its share is gradually decreasing. However, it's worth noting that without the drop in car prices, we likely wouldn't have seen a decrease in headline inflation to 3.3% and core inflation to 3.4%. Source: Macrobond, XTB
Looking at the bottom at the Manheim index two months ago, theoretically, the largest annual declines in car prices are behind us. Source: Macrobond, XTB
Rent-related inflation still weighs the most, but at the same time, we see that its rate of decline is starting to slow down. Nonetheless, we have a few more months of declines ahead of us. Source: Macrobond, XTB
Theoretically, the Fed shouldn't have reasons for satisfaction when looking at the service inflation chart. It remains high, although there is a slight slowdown compared to the previous reading, and services excluding rents saw a minimal increase to 5%. Source: Macrobond, XTB
The likelihood of rate cuts is increasing significantly. For September, it rises to nearly 70%, and combined, it is already over 80%. For November, 1.25 cuts are priced in, and for this year, two full cuts. However, it's important to remember that this could potentially change during today's meeting, but the Fed certainly has reasons to be satisfied. If the next two inflation readings are similar, September should be a certain date for the first cut. Source: Bloomberg Finance LP, XTB
The dollar is weakening, yields are decreasing, which of course favors new records on futures contracts on Wall Street. The US100 is already up nearly 1%, and just a 3% further move is needed to reach the 20,000-point level. Source: xStation5
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