MNI US CPI Preview: An Early Look At The Tariff Hit

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Executive Summary

• Analyst unrounded estimates see core CPI inflation re-accelerating to 0.27% M/M in April after a surprisingly soft 0.06% M/M in March.
• The unrounded range we’ve seen of 0.20-0.34% M/M hinges on expectations behind some volatile categories such as lodging away from home after its sharpest decline in over three years in March.
• The broad assumption is that April is too early to have seen the impact from sharp increases in tariffs in April, with summer months more likely as inventories are reduced after significant front-running.
• However, Monday’s significant cooling in US-China tensions - with US tariffs on China temporarily being cut from 145% to 30% and China tariffs on US from 125% to 10% for a 90-day period - will see this report viewed in a different light again.
• That said, while April’s data could be glossed over as unrepresentative of ongoing inflation dynamics, the risks to an outsized market reaction tilt to the hawkish side (albeit with Monday’s further hawkish readjustment likely limiting the magnitude). Weaker-than-expected data could be shrugged off as the calm before the storm. Stronger April inflation pressures could be a signal that firms are already raising prices.
• After a significant hawkish re-pricing on positive trade developments, Fed Funds futures imply a next Fed cut coming in July (two meetings away) is only a 50/50 call with it fully priced for September.