- The US consumer price index is expected to rise a 2.5% year -on -year in May, at a stronger rate than in April.
- Annual underlying IPC inflation is expected to increase 2.9%.
- May inflation data could impact Fed’s policy prospects, affecting the US dollar.
It is expected that May Consumer Price Index (CPI) of May highlight an increase in inflation in the United States (USA). Investors will examine the details of the report to see if the new tariff regime of US President Donald Trump is increasing prices, which could have significant implications for the policy perspectives of the Federal Reserve (FED).
The US Labor Statistics Office will publish May data on Wednesday at 12:30 GMT. The immediate market reaction could influence the valuation of the US dollar (USD).
What to expect in the next CPI data report?
As measured by the change in the CPI, it is expected that inflation in the US will increase at an annual rate of 2.5% in May, at a stronger rate than the 2.3% increase recorded in April. It is expected that the inflation of the underlying IPC, which excludes the volatile food and energy categories, increases 2.9% year -on -year, compared to the growth of 2.8% reported in the previous month.
Monthly, it is projected that the IPC and the underlying IPC increase 0.2% and 0.3%, respectively.
In the previous report, TD Securities analysts said: “It is likely that the inflation of the underlying CPI will remain unchanged in May, registering an increase of 0.23% m/m. We hope that the prices of travel services, still soft, maintain the series under control, since signs of tariff transfer signs begin to emerge.”
“It is likely that the general CPI inflation has lost speed, partly due to a great decline in gas prices. We will foresee that the inflation of the general and underlying CPI is 2.4% and 2.9% year -on -year, respectively,” they added.
How could the US Consumer Price Index affect the USD/USD consumer index?
May inflation data could influence market assessment on Fed fees and affect the short -term USD rates. At its May policy meeting, the FED maintained the federal funds rate without changes in the range of 4.25% to 4.50%. The comments of the FED officials since then have stressed that those responsible for the policy are willing to remain patients in terms of the flexibility of politics, unless there is a significant deceleration in the perspectives of the labor market. “I see higher upward risks for inflation and potential risks downward for employment and production growth,” said the member of the Governors of the Fed, Adriana Kugler. Meanwhile, the president of the Chicago Fed, Austen Goolsbee, said they must wait and see if the tariffs have a great or small impact on inflation before taking a policy measure.
The last US employment report showed that non -agricultural payrolls increased by 139,000 in May, exceeding the market expectation of 130,000. The probability of a 25 basic points cut (PBS) in July, according to the Fedwatch tool of the CME, fell below 20% after these data, from approximately 30% earlier at the beginning of the week, which suggests that the markets evaluated the labor market as healthy enough for the Fed to delay its rate cut.
A significant upward surprise in the monthly reading of the underlying CPI, which is not distorted by base effects, could boost the USD with an immediate reaction and weigh on the EUR/USD, since such reading could feed the expectations that the Fed will only lower the policy rate once this year. On the contrary, a figure below 0.2% in these data could relieve concerns that inflation remains sticky in the second half of the year due to tariffs and harm the USD. In this scenario, the EUR/USD could gain bullish impulse.
Eren Sengezer, leading analyst of the European session at FXSTERET, offers a brief technical perspective for EUR/USD and explains:
“The indicator of the relative force index (RSI) in the daily chart remains above 50 but moves laterally, suggesting that the bullish bias remains intact, although it lacks impulse.”
“On the positive side, the immediate resistance level is found in 1,1575 (maximum of April 21, midpoint of the four -month rising regression channel) before 1,1700 (static level, round level) and 1,1860 (upper limit of the ascending channel). Alternatively, the simple mobile average (SMA) of 20 days in 1,1320 could be seen as the first support before 1,1250 23.6% of the upward trend, lower limit of the ascending channel) and 1,1060 (38.2% fibonacci setback). “
FAQS inflation
Inflation measures the rise in prices of a representative basket of goods and services. General inflation is often expressed as an intermennsual and interannual percentage variation. The underlying inflation excludes more volatile elements, such as food and fuel, which can fluctuate due to geopolitical and seasonal factors. The underlying inflation is the figure on which economists focus and is the objective level of central banks, which have the mandate of maintaining inflation at a manageable level, usually around 2%.
The consumer price index (CPI) measures the variation in the prices of a basket of goods and services over a period of time. It is usually expressed as an intermennsual and interannual variation. The underlying IPC is the objective of the central banks, since it excludes the volatility of food and fuels. When the underlying IPC exceeds 2%, interest rates usually rise, and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually translates into a stronger currency. The opposite occurs when inflation falls.
Although it may seem contrary to intuition, high inflation in a country highlights the value of its currency and vice versa in the case of lower inflation. This is because the Central Bank will normally raise interest rates to combat the greatest inflation, which attracts more world capital tickets of investors looking for a lucrative place to park their money.
Formerly, gold was the asset that investors resorted to high inflation because it preserved their value, and although investors often continue to buy gold due to their refuge properties in times of extreme agitation in the markets, this is not the case most of the time. This is because when inflation is high, central banks upload interest rates to combat it. Higher interest rates are negative for gold because they increase the opportunity cost to keep gold in front of an asset that earns interest or place money in a cash deposit account. On the contrary, lower inflation tends to be positive for gold, since it reduces interest rates, making bright metal a more viable investment alternative.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
