Thursday's CPI Inflation Reading Is Critical: Here's What Investors Need To Know

Zinger Key Points
  • Economists are expecting the U.S. Labor Department to report 8% CPI inflation on Thursday.
  • So far, the Federal Reserve has had limited success in bringing down inflation.
Thursday's CPI Inflation Reading Is Critical: Here's What Investors Need To Know

The SPDR S&P 500 ETF Trust SPY traded lower by 0.7% on Wednesday morning ahead of a critical consumer price index (CPI) inflation reading on Thursday morning.

Economists are expecting the U.S. Labor Department to report 8% CPI inflation in October, down from 8.2% in September and a peak of 9.1% in June. Economists are also projecting core CPI inflation, which excludes volatile energy and food prices, gained 6.5% in October, down from 6.6% in the previous month.

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The latest inflation reading comes after the Federal Reserve issued its fourth 0.75% interest rate hike in the past five months last week in its ongoing battle to bring down the highest U.S. inflation in roughly 40 years. So far, the Fed has had limited success in cooling down an overheating U.S. economy.

Jobs And Wages: Last week, the Labor Department reported the U.S. economy added 261,000 jobs in October, exceeding economist estimates of 205,000 positions. The Labor Department also reported wages were up 4.7% from a year ago and up 0.4% from September. U.S. GDP also grew 2.6% in the third quarter, ahead of the 2.3% growth economists were expecting.

In addition to the CPI reading, investors will be watching closely on Friday when the University of Michigan releases its November consumer sentiment index reading. Economists are expecting a reading of 59.5, in line with the October reading.

Related Link: What's Next For The Market After Aggressive Fed Rate Hike, Hot Jobs Report?

Voices From The Street: Mimi Duff, managing director at GenTrust, said Wednesday that the CPI report on Thursday could be a significant stock market catalyst.

"The 25% drop in equities simply takes into account the move higher in interest rates but not significant revisions to earnings that will likely be needed," Duff said.

"We'd add to risk after we see cheaper valuations, falling inflation and/or stable interest rates."

DataTrek Research co-founder Nicholas Colas said Wednesday that investors should be prepared for another disappointing inflation reading on Thursday.

"The Cleveland Fed model, which has had a good track record this year, suggests that Thursday’s CPI report will be hotter than expected," Colas said.
The Cleveland Fed model is currently projecting 8.1% year-over-year and 0.8% month-over-month headline CPI inflation.

"The data here says Thursday’s CPI report is unlikely to show any real progress on inflation," Colas said.

Benzinga's Take: Any surprises in the CPI reading on Thursday could trigger some extreme stock market volatility.

The bond market is currently pricing in a 43.2% chance of a fifth consecutive 0.75% Fed interest rate hike in December, but that percentage could rise dramatically if the CPI reading comes in higher than expected.

See Also: Markets Rally Despite Hot Inflation Data — Why Are The Fed's Rate Hikes Having No Effect On Inflation?: Benzinga TV

Photo: Zolak via Shutterstock

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