Another soft CPI print may further support FOMC slowdown

Year over year headline inflation came in below consensus at 7.1%, while core inflation increased by 0.2% month on month, the slowest rate of price increases since August 2021. More importantly, this is the second consecutive relatively weak inflation print in the US, providing further evidence that peak inflation is probably behind us, and that inflation has engaged in a downward trajectory.

For the US Federal Reserve (Fed), this second consecutive lower than expected inflation print is a welcome development and puts Chairman Powell in a more comfortable position going into today’s FOMC press conference. While the Fed has often communicated that it will remain cautious because the “historical record cautions strongly against prematurely loosening policy”, it can also be somewhat satisfied that it is starting to see “compelling evidence” that inflation is coming down. With monetary policy arguably already in restrictive territory, in our view the Federal Reserve should seriously consider significantly reducing the pace of future rate hikes over the coming meetings. 

Just now another softer CPI print comes in from the UK at 10.7%. The fall is helped by the reduction in petrol prices but will do little to ease the cost of living crisis. Another data point for the BOE to consider going into the MPC meeting on Thursday. It’s a big week for rate decisions.