What is the distribution of forecasts for the US CPI?

Why it’s important?

The ranges of estimates are
important in terms of market reaction because when the actual data deviates from the
expectations, it creates a surprise effect. Another
important input in market’s reaction is the distribution of forecasts.

In fact, although we can have a range of
estimates, most forecasts might be clustered on the upper bound of the
range, so even if the data comes out inside the range of estimates but
on the lower bound of the range, it can still create a surprise effect.

Distribution of forecasts for CPI

CPI Y/Y

• 3.0% (2%)
• 2.9% (59%) – consensus
• 2.8% (27%)
• 2.7% (8%)
• 2.6% (2%)
• 2.4% (2%)

CPI M/M

• 0.5% (1%)
• 0.4% (37%)
• 0.3% (47%) – consensus
• 0.2% (14%)

Core CPI Y/Y

• 3.3% (81%) – consensus
• 3.2% (17%)
• 3.1% (2%)

Core CPI M/M

• 0.3% (65%) – consensus
• 0.2% (35%)

The market will focus on the Core CPI. We can see that there’s a pretty strong consensus for a 3.3% Y/Y number, so even a 0.1% miss might be enough for a correction in the recent trends. In fact, a soft report should be the best case scenario on an asymmetric basis and will likely see Treasury yields and the US Dollar falling, and the risk assets rallying. On the other hand, another hot report will likely cause
some trouble in the markets with the stock market looking as the most
vulnerable right now.

This article was written by Giuseppe Dellamotta at www.forexlive.com.